Econ 201 final

In a graph showing a straight-line market demand curve, the marginal revenue curve is:

a straight line that begins at the same point as the demand curve on the y-axis but with twice the slope.

In a competitive industry:

all firms produce at the same marginal cost

DVD players and DVDs are:

complementary goods.

If the production of two goods uses a common input, increases in production of one good will cause:

decreases in the supply and increases in the price of the other good.

To maximize profit the monopolist should set a:

higher price in markets with more inelastic demand.

Monopolistically competitive firms set price:

greater than marginal cost.

If the demand for bacon is relatively ​elastic​, a 10 percent decline in the price of baconwill:

increase the amount demanded by more than 10 percent.

The pursuit of profits in a competitive market:

minimizes total industry costs.

Internet dating services such as Match.com are in a market dominated by several large firms, making themarket a(n:)

oligopoly.

Which BEST creates incentives to reduce the pollution generated by washing machines?

taxing the pollutants directly caused by washing machines

Setting the maximum legal price above the market price will cause:

the market to reach an equilibrium outcome

For a monopolist, MR is always less than P because:

when a monopolist lowers the price to sell more units, it must lower the prices of all units sold.

. Futures contracts reduce future uncertainty. Which statement(s) show how this is achieved? I. Futures contracts allow the parties involved to mitigate possible shortages in quantities of the good. II. Futures contracts allow the parties involved to mitigate unexpected changes in price that could hurt earnings. III. Futures contracts always allow the seller to receive a price that is higher than the market price for the product.

I and II only

Assume an EPA official observes the following situation in a small town on the banks of a river. The town depends heavily on fish for its food and is heavily dependent on coal for its power. A coal factory on the banks of the river empties pollutants into the river, causing health problems among the residents and the fish to develop toxic residues in their livers and other organs. Which of the following solutions should the EPA choose to mitigate this negative externality problem (at least in the short run)? I. levy taxes on the coal factory's production of pollutants II. levy taxes on the consumers' consumption of fish III. create a market for tradable allowances IV. subsidize firms that produce clean fish

I and III only

When quantity supplied is greater than quantity demanded, this is called

Surplus

Every summer, Matt travels by air to see his grandmother. Matt's maximum willingness to pay for an airline ticket is $260, but the airline requires a minimum of only $100 to fly him. Normally, Matt pays the airline the going market price of $250 per ticket. If the government places a $50 tax on each ticket, raising ticket prices to $270 and causing Matt not to go, what is the deadweight loss created by this tax?

$160

Suppose Tom can grow 100 bushels of corn in a month or he can grow 75 bushels of wheat. Kevin can grow 50 bushels of corn or 100 bushels of wheat in a month. -Who has the absolute advantage at growing corn? -Who has the comparative advantage at growing corn? -Would they both benefit from a trade where Tom sends Kevin 3 bushels of corn and Kevin sends Tom 2 bushels of wheat? That is, will both of them do better making that trade instead of growing all their food themselves? -Who has the comparative advantage at growing wheat?

- Tom -Tom - No - Kevin

Which of the following statements is TRUE? I. A $0.50 tax on each fishing lure sold raises the price per lure by $0.50. II. A tax on sellers is equivalent to a tax on buyers. III. A tax on buyers is analyzed by shifting the demand curve up by the amount of the tax.

11 only

1. The difference between what buyers pay for a unit of a good and what sellers receive is known as the

Tax

The law of demand states that:

As prices increase, quantity demanded decreases

Voluntary trade between two parties only occurs when

Both parties expect to benefit

. Which statement is TRUE in a market with a price ceiling?

Buyers and sellers experience unexploited gains from trade

Consider the market for gasoline, a good with a relatively low elasticity of demand. Who will bear the majority of a tax imposed on gasoline?

Buyers will bear the majority of the tax, as long as demand is less elastic than supply.

The term ​opportunity cost​ means:

Everything that is given up when a choice is made

Which of the following statements is TRUE? I. If an activity creates an external cost of $15, the government should subsidize the activity by $15. II. Social surplus is maximized when the private marginal benefit equals the social cost. III. External costs result in markets producing too much output. IV. Someone pays external costs other than the producer or consumer.

II, III, and IV only

Which statement is TRUE?

If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profitby selling more units at a lower price per unit.

Suppose ground beef and hamburger buns are complementary goods. This means:

If the price of ground beef increases, demand for hamburger buns willdecrease

Suppose shoes and sandals are substitute goods. This means:

If the price of sandals increases, demand for shoes will increase

Why might the benefits of monopolistic competition outweigh the inefficiencies?

If we had perfect competition instead of monopolistic competition, we would not have all the varietyand innovation that we have today.

The iconic blue-and-white Chinese porcelain sold to people all over the world (particularly between thefourteenth and the sixteenth centuries) was so successful, entrepreneurs in Persia, Netherlands, Syria, Iberia,Mexico, and many other areas attempted to copy it. The actual process for creating such high-quality ceramicswas kept secret, but in 1708 a German alchemist finally found a way to replicate the ancient art. What do youexpect happened to the price of porcelain after 1708, and why?

It should have fallen because of the increased competition.

A drought (long period without rain) will cause what effect in the market for almonds,which use a lot of water?

It will decreases supply, which will increase the equilibrium price

Since its founding in 331 B.C.E., the city of Alexandria has been a center of trade for the Mediterraneancountries, as well as the Middle Eastern countries. Part of this is due to geography, but it is also due to thenetwork effect. What is the source of the network effect?

Merchants want to maximize trading opportunities.

A market is in ​equilibrium​ if

Quantity supplied is equal to quantity demanded

Brazil is the world's largest sugarcane producer, and sugarcane can be used for producing sugar and the fuel ethanol for automobiles. Which sequence of events is correct

Rising oil prices cause Brazilian producers to shift sugarcane production from sugar

The big problem in economics - that there are not enough goods to satisfy all wants,is called

Scarcity

A student trying to maximize her semester GPA already studies as many hours as possible but can perhaps usethat time more efficiently. A marginal hour spent studying economics will raise her GPA by 0.05. A marginalhour spent studying literature will raise her GPA by 0.02. Should she reallocate her time?

She should spend more time studying economics and less time studying literature.

The online photo-sharing Web site Shutterfly offers unlimited free uploads. Which of the following bestexplains why they offer this service at no charge?

Shutterfly is trying to increase switching costs for their consumers

The term ​quantity supplied​ refers to

The amount of a good that sellers are willing to sell at a specific price

Consumer surplus is

The difference between the maximum price a consumer is willing to payand the price they actually do pay.

The term ​demand​ refers to:

The maximum willingness to pay in the market for different quantities ofgoods

Which is an example of an event that will increase the demand for oranges?

The price of a substitute (such as apples) increases

Land used to grow corn can also grow soybeans. As the demand for corn used in ethanol began to increase the price of corn, what happened to the price of soybeans?

The price of soybeans rose, since farmers began planting corn instead of soybeans, thus decreasing the supply of soybeans.

. At a price ceiling of $6 per sheet of drywall, quantity demanded is 100 and quantity supplied is 75. What will happen in the drywall market if there is an increased demand for drywall in the construction industry?

The shortage of drywall will increase above 25 units.

Economics is

The study of all aspects of the social world

Mobile homes are housing units installed on a permanent foundation owned by a landlord. Although a resident owns the home, she rents the foundation from the landlord. In theory, owners of mobile homes can transfer their home to a different foundation if the rent becomes too steep, but uninstalling, transporting, and reinstalling the mobile home is usually prohibitively expensive. This "lock-in" effect encourages state legislatures to create rent controls for mobile home foundations. Which statement is a plausible, unintended consequence of these laws?

There are few new mobile home foundations constructed.

Suppose ramen noodles are an inferior good. What happens to equilibrium price and quantity for ramen noodles if income of the buyers increases and a ban on the importation of wheat makes ramen noodles more expensive to produce?

There will be a decrease in the equilibrium quantity but equilibrium price might rise, fall, or stay the same

Suppose there is a decrease in the labor costs for picking bananas at the same timethat there is an increase in the population. What will this do to the equilibrium price andquantity of bananas?

There will be an increase in equilibrium quantity, and equilibrium pricecould rise, fall, or stay the same

You've been hired as a management consultant to four different companies in competitive industries. They'reeach trying to figure out if they should produce a little more output or a little less output to maximize theirprofits. The firms all have typical marginal cost curves: They rise as the firm produces more. Your staff did allthe hard work for you of figuring out the price of each firm's output and the marginal cost of producing onemore unit of output at their current level of output. WaffleCo, maker of generic-brand frozen waffles: price = $4 per box; marginal cost = $2 per boxRio Blanco, producer of copper: price = $32 per ounce; marginal cost = $45 per ounceGoDaddy.com, domain name registry: price = $5 per Web site; marginal cost = $2 per Web siteLuke's Lawn Service: price = $80 per month; marginal cost = $120 per monthWhich firms should produce more, which should produce less, and which are producing just the right amount?

WaffleCo and GoDaddy.com are producing too little and Rio Blanco and Luke's Lawn Service areproducing too much.

What negative externality does antibiotic use create?

With greater use of antibiotics, bacteria become increasingly resistant to them, thus increasing the likelihood of people dying from drug-resistant bacteria.

Which would be the MOST likely place to find an internalized externality? (Keep transaction costs in mind.)

a paper mill polluting a stream that flows only into a single farm

If arbitrage becomes extensive, a price-discriminating monopolist selling its patented drug in two marketswill:

begin to charge the same price in both markets.

The social cost of driving an SUV is equal to:

both the cost of the vehicle's pollution and its operation (gas, etc.).

How do speculators mitigate shortfalls in the equilibrium quantities traded in markets?

by buying up items in advance of rising prices and then selling them in the market when prices increase

Under a binding price ceiling, one expects the quality of a good to:

fall

Housing shortages caused by rent controls are larger in the long run because the supply of housing is more elastic in the long run.

false

An important lesson of price discrimination is that:

it increases profits only when the demand curves in two different markets are not the same.

A tax on sellers of apples:

leads sellers to supply less apples at every price.

The locovore movement encourages eating locally produced food to reduce the greenhouse gases emitted from transporting food long distances, placing upward pressure on local land prices as farmland becomes more valuable. Which statement reflects what will likely occur as a result?

local forests become less common

As the price of a good fluctuates, a profit-maximizing firm will expand or contract production along its:

marginal cost curve.

In the market for good X—a necessity good without any good substitutes—the workers and capital in the industry can easily find work producing other goods. The burden of the tax is likely to fall:

more heavily on buyers, given that demand is more elastic than supply.

Pfizer sells Atgam in New Zealand for $14 per pill and in Brazil for $8 per pill. This implies that the demandcurve in New Zealand must be ________ than in Brazil.

more inelastic

If the demand for a good increases when incomes increase, that good is a

normal good

Monopolistic competition combines features of:

perfect competition and monopolies.

Which one would NOT be considered a network good?

quiet study rooms

Which of the following is the best example of a monopolistic competitive market?

restaurants

An improvement in production technology (such as more efficient tractors orfertilizer) will:

shift the supply curve to the right.

When a pharmaceutical company discovers a new drug, patent law gives it market power by guaranteeing:

sole ownership of the right to sell the drug for a limited number of years.

Suppose that you own two farms on which to grow corn. Farm 2 has a lower marginal cost of producing cornthan Farm 1. To lower total cost of production, you should produce:

some on Farm 1 and some on Farm 2.

A firm's profit-maximizing quantity does not depend on its fixed costs.

true

Your neighbor has a tree that blocks your view of a distant hill. Your neighbor values the tree at $100. You value the tree's removal at $150. Tree removal costs $60. In this case, property rights are clear. Your neighbor owns the airspace extending above his house for some distance. Transaction costs in this case:

would prohibit a private solution to the external cost.

Programs such as Steam distribute more and more video games. Purchasers buy the game and download itimmediately to their computer. If the entire system is automated, estimate the marginal cost of producing andselling video games this way (ignore electricity costs).

zero