Econ 202 Tamu Edwardson Final Exam Part 2
Price + | Marginal social cost | / pf+----------------------f | / | | \ / | | \ / | Marginal private pa+----------------a | / cost | / | \ | / | / | \ |/ pb+----------d----e------b | / | | / |\ | / | | / | \ | / | | / | \ pc+----------------c | \ | | / | | \ | | | | Demand | | | | 0 +------------+--+-----+------------+ qd qa qb Quantity The deadweight loss due to the externality is represented by the area
abf
A a service station owner in Staten Island, New York, was worried that raising the price of gasoline would would cause be quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is
Inelastic
The price elasticity of demand along a downward sloping linear demand curve
Is elastic and high prices and inelastic at low prices.
If the price elasticity of demand for canned soup is estimated at -1.62, what happens to sales revenue if the price of canned rises?
It falls
Diseconomies of scale occur when the slope of a long run cost curve is
negative
The price elasticity of an upward sloping curve is always
negative
Because of the free-rider problem
private provision leads to the production of less than the efficient quantity of a public good.
If a consumer always buys goods rationally, then the ______ spent on all goods will be____
the marginal utility per dollar, equal
|...Labor.........|.......Output........|...Total.Fixed..| |.(workers)......|.......(bikes)......|.Cost.(dollars).| |.........0.......|.........0........|........1000...| |........5........|.........1000.....|............3000..| |.......10........|........3000.....|............5000.| |.....15.........|......4000........|.......7000....| |........20.......|........4500.....|.........9000....| The above table gives some production and cost information for flaming Fernando's, a restaurant that sells fiery frijoles. What does the average variable cost of producing 1000? frijoles
$2
|...Labor.........|.......Output........|...Total.Fixed..|....Total.variable.|.......Total.cost.......|. |.(workers)......|.......(bikes)...........|.Cost.(dollars).|.....cost.(dollars)|............(dollars)........| |........0.............|.......0...........|..........200........|.............................|...............................| |........1.............|.......20...........|........................|.............100..........|...............................| |........2.............|.......50...........|........................|.............................|...............................| |........3.............|.......60...........|........................|.............................|...............................| |........4.............|.......64...........|........................|.............................|...............................| .. The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been pretty spotty. Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total fixed cost of producing 64 bikes?
$200
|...Labor.........|.......Output........|...Total.Fixed..|....Total.variable.|.......Total.cost.......|. |.(workers)......|.......(bikes)...........|.Cost.(dollars).|.....cost.(dollars)|............(dollars)........| |........0.............|.......0...........|..........200........|.............................|...............................| |........1.............|.......20...........|........................|.............100..........|...............................| |........2.............|.......50...........|........................|.............................|...............................| |........3.............|.......60...........|........................|.............................|...............................| |........4.............|.......64...........|........................|.............................|...............................| .. The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been pretty spotty. Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total variable cost of producing 60 bikes?
$300
|...Labor.........|.......Output........|...Total.Fixed..|....Total.variable.|.......Total.cost.......|. |.(workers)......|.......(bikes)...........|.Cost.(dollars).|.....cost.(dollars)|............(dollars)........| |........0.............|.......0...........|..........200........|.............................|...............................| |........1.............|.......20...........|........................|.............100..........|...............................| |........2.............|.......50...........|........................|.............................|...............................| |........3.............|.......60...........|........................|.............................|...............................| |........4.............|.......64...........|........................|.............................|...............................| .. The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been pretty spotty. Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total cost of producing 50 bikes?
$400
The slope of a perfectly elastic demand curve is
0 (horizontal)
|Quantity.of....|....Total.Utility..|...Quantity.of..|....Total.Utility.from.| |....Pizza..........|....from.Pizza....|....Diet.Pepsi...|.........Diet.Pepsi.......| |........0.............|.........0.............|............0..........|...............0..............| |........1.............|.........24...........|............1..........|..............14..............| |........2...........|.........44......|............2..........|..............26..............| |........3.............|.........60...........|............3..........|..............36..............| |........4.............|.......72.........|............4..........|..............44..............| |........5.............|.......76...........|............5..........|..............50..............| |........6.............|.........79...........|............6..........|..............54..............| |........7.............|.........80...........|............7..........|..............60..............| Suppose you only consume pizza and Diet Pepsi. The table gives your utility from consuming these two goods. What is the marginal utility you get from the fourth slice of pizza?
12
____________________________________________________________ |_Quantity of_|___Total Utility_|__Quantity of__|___Total Utility_______| |___Soup____|______________|__Sandwiches _|____________________| |____1______|______40______|_______1_____|_________45_________| |____2______|______60______|_______2_____|_________75_________| |____3______|______72______|_______3_____|_________102________| |____4______|______82______|_______4_____|_________120________| |____5______|______88______|_______5_____|_________135________| |____6______|______90______|_______6_____|_________145________| The table above shows Kiera's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Kiera has $18 to spend on these two goods. If Kiera maximizes her utility, how many units of each good should she buy?
3 cups of soup and 4 sandwiches
An externality is
A benefit or cost experienced by someone who is not a producer or consumer of a good or service
Bobby consumes only chocolate ice cream and vanilla ice cream. He is spending all of his income. His marginal utility of chocolate Is 200 and his marginal utility of vanilla is 200, I'm the price of chocolate is $1.00 per scoop and the price of vanilla is $2.00 per scoop. To maximise his utility Bobby should
By no vanilla ice cream
When the long-run average cost increases as output increases there are
Diseconomies of scale
The observation that people tend to value something more highly when they own it than when they don't is called the
Endowment effect
Income elasticity measures
How is goods quantity demanded responds to change in buyers' incomes.
The inelastic segment of the demand curve
Lies below the midpoint of the curve
If because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what dollars S1 represent? (Assume Q2<Q1 and that S1 shifted to the left = S2)
Marginal private cost
A wide variety of substitutes available for the good would lead to
More elastic demand for a good
Last year Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is_____. So Sefton considers potatoes to be a(n) _____ good.
Negative, inferior
The slope of the average total cost curve is ___ until the intersect with the ____ curve, then the slope becomes ____.
Negative, marginal cost curve, positive
Goods that are non-rival and nonexcludable are called
Public goods
Arnold Kim began blogging about Apple products during his fourth year of medical school. Kim's website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his website, despite the nearly $200,000 he had invested in his education. In making his decision, Kim decided to ignore the money and time he spent on his education. Economists would say that Kim made a
Rational decision to ignore these sunk costs
When the demand is elastic, a fall in price causes total revenue to rise because
The increase in quantity sold is large enough to offset the lower price
Red Stone creamery currently hires five workers. When it added the sixth worker, its output actually fell. Which of the following statements is true?
The marginal product off the sixth worker most be negative.
A positive externality causes
The marginal social benefit to exceed the marginal private cost of the last unit produced
Most people would prefer to drive a luxury car that has all the options, But more people buy less expensive cars even though they could afford the luxury car because
The marginal utility per dollar spend on the less expensive car is higher than that spent on luxury cars
How does the construction of a demand curve for a private good differ from that of a public good
The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good.
A common mistake consumers commit when they make decisions is
They fail to ignore sunk costs
If four workers can produce 18 chairs at day and five can produce 20 chairs the day the marginal product of the work is
Two chairs
If diminishing marginal returns have already set in for Golden Lark Woodworks, and the marginal product of the 6th carpenter is 8 chairs, then the marginal product of the 7th carpenter is
less than 8 chairs
