ECON 202

If the optimal Pigovian tax (from the previous question) were adopted, it would lead the firm to harvest ______ thousand board feet and raise ______ in tax revenue. a) 500; $250,000 b) 500; $500,000 c) 1,000; $500,000 d) 1,000; $1,000,000 e) 1,000; $5,000,000

a) 500; $250,000

In which of the following markets is the equilibrium efficient? a) A competitive market for a homogenous good that has no external effect b) A competitive market for a homogenous good that generates pollution c) A market for a differentiated good. d) A market for labor, when workers' effort is non-verifiable e) A market for a good with high barriers to entry.

a) A competitive market for a homogenous good that has no external effect

A price-setting firm will choose a price: a) Above marginal cost (MC) b) Below average cost (AC) c) Above willingness to pay (WTP) d) Below willingness to pay (WTP) e) None of the above

a) Above marginal cost (MC)

The figure below shows the Gini coefficient in market income across countries. Which of the countries below has the highest level of inequality in market income? a) South Africa b) Taiwan c) Sweden d) Hungary e) the United States (US)

a) South Africa

Is the competitive equilibrium price and quantity efficient? a) Yes, because it maximizes the total surplus. b) Yes, because it maximizes the producer surplus (or sellers' profits). c) Yes, because it maximizes the consumer surplus. d) No, because it does not maximize the total surplus. e) No, because it does not maximize the producer surplus (or sellers' profits).

a) Yes, because it maximizes the total surplus.

Refer to the figure in Question 9. If the reservation option of landless farmers improves, then Bruno will make Angela a take-it-or-leave-it offer that is: a) better for Angela and worse for Bruno. b) better for Angela and better for Bruno. c) worse for Angela and worse for Bruno. d) worse for Angela and better for Bruno. e) none of the above

a) better for Angela and worse for Bruno.

The development of robotic technology _____ income inequality if the income "earned" by the robots goes to the _____. a) increases; owners b) decreases; owners c) increases; workers d) decreases; workers. e) none of the above

a) increases; owners

an allocation is efficient if: a) it is impossible to make someone better off without making someone else worse off b) the surplus is split equally between producers and consumers. c) no individual has an incentive to change behavior. d) profits are maximized. e) the price of goods is equal to their marginal private cost

a) it is impossible to make someone better off without making someone else worse off

Recall the figure below. Allocation R is considered Rawls' ideal because it represents a distribution of income that: a) maximizes the income of the poor. b) maximizes the income of the rich. c) maximizes average income. d) minimizes the Gini coefficient.

a) maximizes the income of the poor

The optimal Pigovian tax of _____ per thousand board feet would lead the firm to harvest the efficient quantity of lumber. a) $0 b) $500 c) $1,000 d) $1,500 e) $2,000

b) $500 MSC - MPC at optimal output optimal output is when MSC = price

Consider a hypothetical economy composed of 80 employed workers and 20 owners. The workers collectively receive 40% of total income, and the owners collectively receive 60% of total income. The Figure below shows the line of perfect equality, the Lorenz curve, and areas A and B, which will be used in questions 46-50. Given what you know about the size of area B, what is the size of area A? a) 1,000 b) 2,000 c) 3,000 d) 4,000 e) 5,000

b) 2,000 find the area of the square, then half of that, then minus area of b

Refer to the payoff matrix in Question 7. Suppose the US and EU sign a climate treaty intended to get both players to Restrict emissions. It includes a penalty for any player that continues with BAU. How large must the penalty be to ensure both players Restrict emissions? a) Greater than 10 b) Greater than 20 c) Greater than 30 d) Greater than 40 e) Greater than 50

b) Greater than 20

Which of the following is not a requirement for a market to be perfectly competitive? a) Homogenous product b) No external effects c) Many buyers d) Many sellers e) Buyers and sellers all know the market price

b) No external effects

The problem of deforestation could also be seen as the result of the fact that forests are often not private goods. When any firm is able to enter a forest and cut timber, the forest is a good example of a) a private good b) a common pool resource c) an artificially scarce public good d) a non-excludable public good

b) a common pool resource

The market demand curve for bread slopes down. If the market for bread is perfectly competitive, then each firm faces _____ demand curve. a) a downward-sloping b) a flat c) an upward-sloping

b) a flat

an allocation is an equilibrium if: a) the total surplus is maximized b) no individual has an incentive to change behavior c) the surplus is split evenly between producers and consumers d) it is technically infeasible to make someone better off without making someone worse off e) all of the above

b) no individual has an incentive to change behavior

Average work hours declined in the US from 1900 to 2000, while average wages increased sixfold. If American workers chose to take more free time even though the opportunity cost of free time increased, then: a) the substitution effect dominated the income effect. b) the income effect dominated the substitution effect. c) both the income and substitution effect worked in the same direction. d) GDP per capita increased more than labor productivity (or GDP per hour worked). e) none of the above

b) the income effect dominated the substitution effect.

Assume Sid is paid $20/hour to teach economics and that his disutility of effort at this job is $8/hour. He works 20 hours a week. If he loses his job, he will be unemployed for 13 weeks. What is his total unemployment rent assuming he would not receive any unemployment benefit if he were fired? a) $1,620 b) $2,480 c) $3,120 d) $4,800 e) None of the above

c) $3,120

How much profit will the logging firm earn? Remember that profit equals revenue minus cost. a) $500 b) $1,000 c) $500,000 d) $1,000,000 e) $1,500,000

c) $500,000; MEC times 1,000

What is the Gini coefficient for this hypothetical economy? a) 0.20 b) 0.30 c) 0.40 d) 0.50 e) None of the above

c) 0.40 Gini = A/A+B

Consider the figure below. Suppose that Bruno owns the land but cannot coerce Angela to work. If Angela is one of many landless farmers, then Bruno will make a take-it-or-leave-it offer in which Angela receives: a) 13 hours of free time and 4 bushels of grain. b) 13 hours of free time and 10 bushels of grain. c) 16 hours of free time and 4.5 bushels of grain. d) 16 hours of free time and 9 bushels of grain. e) None of the above

c) 16 hours of free time and 4.5 bushels of grain. when he can force angela to work, bruno will work her at her biological constraint. when she can refuse, he will offer her the point on her reservation curve where he can take the most surplus. Angela will then choose to work at the same point she would choose if there was no rent.

Consider a competitive market for corn in a village in which the production and consumption of corn have no external effects. The daily market demand for corn is given the equation WTP = 20 - Q, where quantity (Q) of corn is measured in bushels per day and consumers' willingness-to-pay (WTP) is measured in dollars per bushel. The market supply of corn is given by the equation WTA = 4 + Q, where producers willingness-to-accept (WTA) is measured in dollars per bushel. These supply and demand curves are illustrated in the figure below, and they will be used in Questions 24-32. What will be the equilibrium quantity of corn? a) 0 bushels b) 6 bushels c) 8 bushels d) 10 bushels e) 12 bushels

c) 8 bushels WTP = WTA

Suppose that for some reason the price were $4 a bushel. In that case there would be: a) excess supply and the price would fall. b) excess supply and the price would rise. c) excess demand and the price would rise. d) excess demand and the price would fall. e) both excess demand and excess supply

c) excess demand and the price would rise.

Suppose that Mario bribed local authorities to rescind the other pizzerias' licenses, making his firm a monopolist. This would: a) increase the producer surplus, increase the consumer surplus, and increase the total surplus. b) increase the producer surplus, decrease the consumer surplus, and increase the total surplus. c) increase the producer surplus, decrease the consumer surplus, and decrease the total surplus. d) decrease the producer surplus, increase the consumer surplus, and decrease the total surplus. e) decrease the producer surplus, decrease the consumer surplus, and decrease the total surplus.

c) increase the producer surplus, decrease the consumer surplus, and decrease the total surplus.

Will the tax increase the villagers' welfare? a) Yes, because it generates tax revenue for the school without reducing the total surplus. b) Yes, because it increases the total surplus in the corn market. c) It depends on whether the benefit of funding the school exceeds the deadweight loss in the corn market. d) No, because it raises the price of corn paid by consumers. e) No, because it reduces the surplus or profit of corn producers.

c) it depends on whether the benefit of funding the school exceeds the deadweight loss in the corn market

. How much revenue will the logging firm earn? Remember the market price of a thousand board feet is $1,500. a) $1,000 b) $1,500 c) $1,000,000 d) $1,500,000 e) $2,500,000

d) $1,500,000

What will be the equilibrium price of corn? a) $6 per bushel b) $8 per bushel c) $10 per bushel d) $12 per bushel e) None of the above

d) $12 per bushel

Suppose that the village imposes a sales tax of $2 on each bushel of corn sold to fund the local public school. What will the new, after-tax price of corn be for consumers? a) $10 per bushel b) $11 per bushel c) $12 per bushel d) $13 per bushel e) $14 per bushel

d) $13 per bushel increases consumer price by less than tax percent

Suppose that other pizzerias have the same cost curves as Mario's firm. What will be the long-run price of pizzas if new pizzerias enter the market as long as there is profit to be made? a) $0 b) $4.50 c) $12.00 d) $22.00 e) $27.00

d) $22.00 AC = MC

You can calculate the surplus at the equilibrium price geometrically using the formula for the area of a triangle. What is the consumer surplus? a) $8 b) $16 c) $24 d) $32 e) $64

d) $32 1/2b x h top triangle (in left section)

What is the producer surplus? a) $8 b) $16 c) $24 d) $32 e) $64

d) $32 1/2b x h bottom triangle (in left section)

How much profit will Mario earn? a) $0 b) $4.50 c) 450 d) $4,500 e) $27,000

d) $4,500 Q(MC) - C(Q)

Which of the following goods is not allocated by markets in the U.S. because doing so is widely viewed as repugnant? a) Higher education b) Bicycles c) Housing d) Human kidneys e) Childcare

d) Human kidneys

Is this outcome efficient? a) Yes, because the firm is maximizing its profits. b) Yes, because consumers only purchase lumber if their willingness to pay (WTP) exceeds the price. c) Yes, because consumers' willingness to pay (WTP) exceeds the firm's marginal private cost (MPC) for every thousand board feet harvested d) No, because the total surplus is not maximized. e) No, because some consumers cannot afford to pay $1,500 per thousand board feet

d) No, because the total surplus is not maximized.

The figure below shows a real wage index in England from 1260 and 2000, highlighting the period following the bubonic plagues of 1348 and 1351. Which of the following statements is correct? a) There was little change in population from 1260 to 2000. b) Stagnant incomes from 1250 to 1348 caused the Black Death. c) The bubonic plague initiated the permanent technological revolution. d) The Malthusian model can explain the rise and fall in real wages from 1348 to 1600. e) The Malthusian model explains the capitalist revolution, which occurred about 1800.

d) The Malthusian model can explain the rise and fall in real wages from 1348 to 1600.

Consider a strategic interaction, in which the US and the EU have the choice to Restrict their greenhouse gas emissions or continue with Business-As-Usual (BAU). The players' payoffs (measured in thousands of dollars per capita) for the four possible outcomes are listed in the table below. For each outcome, the US receives the payoff to the left of the comma, and the EU receives the payoff to the right of the comma. Assume this is a one-shot game and that both players are completely self-interested. What is the Nash equilibrium? a) US plays Restrict; EU plays Restrict b) US plays BAU; EU plays Restrict c) US plays Restrict; EU plays BAU d) US plays BAU; EU plays BAU e) There is no Nash equilibrium in this game

d) US plays BAU; EU plays BAU

The problem of deforestation could also be modelled as which 2x2 game? a) an assurance game b) a chicken game c) an invisible hand game d) a prisoners' dilemma e) none of the above

d) a prisoners' dilemma

What would Mario do if the market price fell? a) Produce more pizza to increase his revenue. b) Produce more pizza spread his fixed cost over more pizzas. c) Produce the same amount of pizza. d) Produce less pizza until his marginal cost equals the price. e) Produce less pizza to decrease his average cost

d) produce less pizza until his marginal cost equals the price

The Gini coefficient for disposable income is lower than the Gini coefficient for market income because the government: a) bans child labor. b) sets the minimum wage. c) provides free K-12 education. d) redistributes income from rich to poor. e) protects intellectual property rights.

d) redistributes income from rich to poor.

Review the figure below. Which of the following statements is true? a) Wealth inequality changes little over time b) Wealth inequality has consistently declined in capitalism. c) The French Revolution achieved a steady decline in wealth inequality in France. d) The United States had a relatively low level of wealth inequality until 1900. e) The United Kingdom had a relatively low level of wealth inequality until 1900.

d) the United States had a relatively low level of wealth inequality until 1900

1. A price-setting firm chooses a price that ensures all the following except that: a) profits are maximized. b) the firm earns monopoly rents. c) marginal revenue equals marginal cost. d) the allocation is efficient. e) the demand curve is tangent to the isoprofit curve

d) the allocation is efficient.

In capitalist economies, an employer's power over their employees increases when all of the following occur, except: a) when the employer increases the wage. b) when the government cuts unemployment benefits. c) when it becomes easier for the employer to monitor work effort. d) when the unemployment rate falls. e) when the expected length of unemployment increases.

d) when the unemployment rate falls.

Mario runs a pizzeria in which the cost of operation depends on the number of pizzas it produces each week. Specifically, the pizzeria has a fixed cost of $8,000 and a marginal cost that starts at $2 and increases with the number of pizzas it produces. These costs are described by the equations, table, and figure below, which will be used in Questions 33-37. Assume there are many pizzerias, so Mario's firm is a price-taker. If the equilibrium price of pizza is $27, how many pizzas will Mario produce? a) 0 b) 100 c) 400 d) 800 e) 1,000

e) 1,000 equilibrium price is MC

Consider a logging firm that harvests lumber from an old-growth forest. Assume that there is no fixed cost to logging, and that the marginal cost of logging increases, because it requires the firm to cut down trees in more difficult terrain. The marginal private cost (MPC) of harvesting lumber is given by the equation MPC = 500 + Q, where Q is measured in thousands of board feet. But clearing old-growth forests also has environmental costs. Assume the marginal external cost (MEC) is given by the equation MEC = 500, so that the marginal social cost is given by the equation MSC = 1,000 + Q. These costs are described by the figure below, which will be used in Questions 38-45. Suppose that the market price of a thousand board-feet is $1,500, and that the logging firm seeks to maximize its profits with no concern for the old-growth forest. How many thousand board feet will the firm harvest? a) 0 thousand board feet b) 250 thousand board feet c) 500 thousand board feet d) 750 thousand board feet e) 1,000 thousand board feet

e) 1,000 thousand board feet

Economics studies: a) how we come to acquire things that make up our livelihood b) how we interact with each other c) how we interact with our natural environment d) how this changes over time e) all of the above

e) all of the above

Which of the following is an example of a social dilemma? a) Traffic congestion b) Climate change c) Deforestation d) Litter e) All of the above

e) all of the above

Building on the problem in Question 11, suppose that capitalists develop a new robot technology that replaces 40 workers. For simplicity, assume it costs nothing to build these robots, that the capitalists continue to pay the remaining 40 workers their original wage, but that 40 workers now receive no income. What is the new Gini coefficient? (You may find it useful to draw a Lorenz curve illustrating the new distribution of income in the figure on the right.) a) 0.50 b) 0.55 c) 0.60 d) 0.65 e) none of the above

e) none of the above

positive income effect

extra income raises your choice of free time

substitution effect

opportunity cost of free time rises, giving incentive to work more