ECON 2023- Final Exam

economies of scale

- ATC falls as Q increases - increasing returns to scale - cheaper to produce each unit when you produce more

Nash Equilibrium

- a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen - both company's choose their dominant strategy

benefits principle

- people should pay taxes based on the benefits they receive from government services - tries to make public goods similar to private goods - wealthy citizens should pay higher taxes: they benefit more from public services (police, fire protection, national defense)

ability to pay principle

- taxes should be levied on a person according to how well that person can shoulder the burden - all taxpayers should make an "equal sacrifice"

falling, rising, minimum

- when MC<ATC, ATC is _______ - when MC>ATC, ATC is ______ - MC curve crosses ATC curve at ATC curve's ______

c

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand? a. Yes, because cutting hair is profitable. b. No, because he needs to have a life outside work. c. It depends on the Marginal Cost and Marginal Benefit (the cost vs. benefit of giving more haircuts). d. None of the above.

b

A firm will exit the market if a. TR=TC b. TR<TC c. TR>TC d. If government imposes tax.

b

A hard cap on the amount of water a factory is permitted to pollute is an efficient way to deal with the pollution externality. a. true b. false

d

A legal maximum on the price at which a good can be sold is called a price a. floor. b. subsidy. c. support. d. ceiling.

a

A legal minimum on the price paid for a given good/service is called a a. price floor. b. reservation price. c. price support. d. price ceiling.

b

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is a. infinity. b. zero. c. one. d. negative one

monopoly

A market in which there are many buyers but only one seller. - tap water - cable tv

oligopoly

A market structure in which a few large firms dominate a market - similar or identical products - cigarettes - tennis balls

a

A monopolist maximizes profits by a. producing an output level where marginal revenue equals marginal cost. b. charging a price that is lower than marginal revenue. c. earning a profit of (P - MC) x Q. d. Both a and b are correct.

b

A monopolist's demand curve is always either horizontal or vertical a. true b. false

d

A parable where shepherds in a medieval town start to overgraze their sheep with no regard for the impact this will have on others... a. is a portrayal of The Tragedy of the Commons. b. is an example of a positive externality. c. illustrates the problem with common resources. d. Both (a) and (c) are correct.

b

A rational decision maker takes an action only if the a. marginal benefit is less than the marginal cost. b. marginal benefit is greater than the marginal cost. c. average benefit is greater than the average cost. d. average benefit is less than the average cost.

a

A university's football stadium is never more than half-full during football games. This suggests that a. the ticket price is above the equilibrium price. b. the ticket price is below the equilibrium price. c. the ticket price is at the equilibrium price. d. nothing about the equilibrium price.

c

An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 50 business travelers who will pay $800 for a ticket while there are 100 vacationers who will pay $400 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc. How much profit will the airline earn if it engages in price discrimination? a. $0 b. $20,000 c. $60,000 d. $80,000

a

An increase in the price of cheese crackers from $2.25 to $2.45 per box causes suppliers of cheese crackers to increase their quantity supplied from 125 boxes per minute to 145 boxes per minute. Using the midpoint method, supply is a. elastic, and the price elasticity of supply is 1.74. b. elastic, and the price elasticity of supply is 0.57. c. inelastic, and the price elasticity of supply is 1.74. d. inelastic, and the price elasticity of supply is 0.57.

externality

An uncompensated impact of one person's actions on the well-being of a bystander is called

b

Anne created a new software program she is willing to sell for $300. She sells her first copy and enjoys a producer surplus of $180. What is the price paid for the software? a. $120 b. $480 c. $180 d. $300

d

Assume Diana buys computers in a perfectly competitive market. It follows that a. Diana has a limited number of sellers to turn to when she buys a computer. b. Diana will find herself negotiating with sellers for a lower price whenever she buys a computer. c. if Diana buys a large number of computers, the price of computers will rise noticeably. d. None of the above is correct.

larger, smaller

At a higher quantity, marginal cost will be ________ (larger or smaller) and marginal product of labor will be ________ (larger or smaller) compared to their values at a lower quantity.

c

Both private goods and club goods are a. rival in consumption. b. nonrival in consumption. c. excludable. d. nonexcludable.

a

Calculate total profit if: Quantity = 400 units Price = $50/unit Cost = $2000 for land and $500/worker Number of workers = 10 a. 13,000 b. 7,000 c. 2,000 d. 15,000

b

Comparing marginal revenue to marginal cost: (i) reveals the contribution of the next unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high. a. (i) only b. (i) and (ii) only c. (ii) and (iii) only d. (i) and (iii) only

b

Consider Julia's decision to go to college. If she goes to college, she will spend $70,000 on tuition, $15,000 on room and board, and $4,000 on books. If she does not go to college, she will earn $32,000 working in a store and she will spend $12,000 on room and board. Julia's cost of going to college is a. $89,000 b. $109,000. c. $108,000. d. $32,000.

b

Consider the city of Fayettetown with only four residents, Avery, Dylan, Amya, and Olivia. The four residents are trying to determine how many hours to spend in cleaning up the public lake. The table below shows each resident's willingness to pay for each hour of cleaning. Suppose the cost of cleaning the lake is $28 per hour, and that the residents have agreed to split the cost of cleaning the lake equally ($7 each). If the residents vote to determine the number of hours spent cleaning the lake, basing their decision solely on what maximizes their own surplus, what is the most number of hours for which all four residents would vote "yes?" a. 3 hours. b. 4 hours. c. 5 hours d. 6 hours.

b

Consider the city of Widgetapolis with only four residents, John, James, Mary, and Lydia. The four residents are trying to determine how many hours to spend in cleaning up the public lake. The table below shows each resident's willingness to pay for each hour of cleaning. Suppose the cost of cleaning the lake is $20 per hour, and that the residents have agreed to split the cost of cleaning the lake equally ($5 each). If the residents vote to determine the number of hours spent cleaning the lake, basing their decision solely on what maximizes their own surplus, what is the most number of hours for which all four residents would vote "yes?" a. 4 hours b. 5 hours c. 6 hours d. 7 hours

a

Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350. Denise's consumer surplus is a. $150. b. $350. c. $500. d. $850.

d

Economics is the study of how society manages its a. limited wants and unlimited resources. b. unlimited wants and unlimited resources. c. limited wants and limited resources. d. unlimited wants and limited resources.

b

Externalities consist of a compensated impact of one person's action on the wellbeing of a bystander. a. true b. false

a

Firms in oligopoly fail to collude and honor their agreements because each firm has an incentive to cheat on the agreement. a. true b. false

b

For a firm in a competitive market, the minimum AVC is $12 and occurs at Q=200 units. For the same firm, the minimum ATC is $15 and occurs when Q=230 units. Which of the following statements is correct? a. In the short run, the firm will shut down if the price of its product is $14. b. In the short run, the firm will shut down if the price of its product is $11. c. For this firm, the minimum value of variable cost (VC) is $2,500. d. None of the above.

a

From our discussion on price ceilings/floors, which of the following would be true if the government imposed a minimum wage below the equilibrium wage? a. Nothing. It would be a non-binding price floor. b. It would be a binding price floor, and it would generate a surplus of labor. c. Nothing. It would be a non-binding price ceiling. d. It would be binding, and it would generate a shortage of labor.

500, 350

Harry places a value of $500 on a broom, and Ron places a value of $700. The price of a broom on the market is $350. calculate: - total surplus - if the government imposes a tax of $200 on brooms, the total surplus in the economy is now...

c

If the monopoly firm is not allowed to price discriminate, then the deadweight loss amounts to a. $0. b. $1,000. c. $2,000. d. $4,000.

40

If you earned $50,000 in 2021 and paid a tax of $20,000, what is the average tax rate? Please write your answer in terms of percentage

d

In Econland, failure to adequately separate trash by type (for recycling) results in fines that are strictly enforced. The fines are an example of a policy that a. relies on moral codes to reduce the pollution externality. b. relies on the Coase Theorem. c. discriminates against foreigners. d. relies on incentives to reduce the pollution externality.

b

In case of natural monopoly, ATC keeps increasing as more quantity is produced a. true b. false

a

In perfect competition, the firms sell identical products while in monopolistic competition, firms sell similar products. a. true b. false

b

In the example of Smallville (ACTIVE LEARNING-1), if both gas stations cheat and plan to sell Q=3,400 each, what will the profit of each individual firm? a. 12,000 b. 10,200 c. 20,400 d. 10,000

b

In the long-run, a competitive firm will shut down if the market price is less than the minimum Average Variable Cost. a. true b. false

a

In which kind of price discrimination is each consumer charged their willingness to pay? a. first degree b. second degree c. third degree d. none of the above

b

In which tax system do high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers. a. Progressive tax b. Regressive tax c. Proportional tax d. Lump sum tax

a

Increasing Marginal Cost means that, as the output level increases, the cost of an additional unit of output will be greater than the cost of the previous unit. a. true b. false

a

Jasmine and Jimmy own a food truck where they sell delicious plant-based food. The price elasticity of demand for their products is εD=0.9. This means that their Total Revenue... a. will go up if they increase their prices. b. will go down if they increase their prices. c. will go up if they decrease their prices. d. will stay the same if they change their prices.

38000, 10000

Jelani owns a small gelato shop on campus. She can make 15,000 pints of gelato a year, and sell them at $5 each. Jelani pays $20,000 a year for raw materials, and $12,000 in rent. Jelani can work at the local coffee shop for $25,000 a year. Jelani invested $80,000 in the factory and equipment to start the business last year: $30,000 from savings and borrowed $50,000 (interest 10% for saving and borrowing). Calculate accounting and economic profit.

b

Johnny and Steve are roommates. Johnny assigns a $20 value to smoking cigarettes. Steve values smoke-free air at $10. Which of the following scenarios is a successful example of the Coase theorem? a. Steve offers Johnny $20 not to smoke. Johnny accepts and does not smoke. b. Johnny pays Steve $11 so that Johnny can smoke. c. Johnny pays Steve $8 so that Johnny can smoke. d. Steve offers Johnny $15 not to smoke. Johnny accepts and does not smoke.

20.4, 25.6, 0 (0% because they are not paying any additional tax per dollar)

Kayla earned $49,000 and Malik $39,000 in income. Each is taxed by a lump-sum tax of $10,000. - the average tax rate for kayla is ___% - the average tax rate for malik is ___% - the marginal tax rate for kayla and malik is ___%

c

Lucia and Lillian are roommates. Lucia has a cat, which she values at $500. However, Lillian is allergic to cats, and she assigns a value of $800 to an environment free of allergens. Which of the following scenarios is a successful example of the Coase theorem (they bargain and reach an agreement where both are better off)? a. Lillian offers Lucia $400 to part ways with her cat, which Lucia accepts. b. Lucia asks Lillian to please keep her sneezing to herself. c. Lillian offers Lucia $600 to get rid of her cat, which Lucia accepts. d. Both (a) and (c) are correct

2, 6, 7, 4

Match the curve to the correct match curve A ___ curve B ___ curve C ___ curve D ___ answer choices: 1. total cost 2. marginal cost 3. total fixed costs 4. average fixed cost 5. marginal product of labor 6. average total cost 7. average variable cost

5000,15000

Moira wants to own a motel. She invested $200,000 last year in the motel business, $150,000 from savings and $50,000 from borrowing. Interest rate for both savings and borrowings is 10%. Identify and calculate yearly implicit and explicit costs.

b

Opportunity cost helps in finding absolute advantage. a. True b. False

zero profit condition

P = MC = ATC represents the _____ _____ ________

a

Policies like corrective taxes are more efficient than hard caps on pollution when it comes to dealing with pollution externalities. a. true b. false

c

Prices usually reflect a. only the willingness/ability of consumers to purchase a product. b. only the willingness/ability of producers to sell a product. c. both the willingness/ability of producers to sell a product, and the willingness/ability of consumers to purchase it. d. None of the above.

d

Refer to Figure 8-12. Suppose a $6 per-unit tax is placed on this good. The amount of tax revenue collected by the government is a. $10.00 b. $6.00 c. $22.50 d. $60.00

c

Refer to Figure. At a price of $15, there would be a a. surplus of 400 units. b. shortage of 200 units. c. shortage of 400 units. d. shortage of 600 units.

b

Refer to Figure. At equilibrium, total surplus is a. $36. b. $54. c. $18. d. $108.

a

Refer to Figure. Both Kendall and Carl work 8 hours per day. Kendall has an absolute advantage in the production of (HINT: Producing more with the same hours of labor is equivalent to producing the same with fewer hours of labor). a. both goods and Carl has an absolute advantage in the production of neither good. b. wallets and Carl has an absolute advantage in the production of purses. c. purses and Carl has an absolute advantage in the production of wallets. d. neither good and Carl has an absolute advantage in the production of both goods.

b

Refer to Figure. Carly should specialize in the production of a. novels. b. poems. c. both goods. d. neither good

b

Refer to Figure. If the demand curve is D and the supply curve shifts from S' to S, what is the change in producer surplus? a. Producer surplus increases by $625. b. Producer surplus increases by $1,875. c. Producer surplus decreases by $625. d. Producer surplus decreases by $1,875.

b

Refer to Figure. In this market for sunscreen, there is a decrease in the price of zinc oxide, an input into sunscreen, and more producers enter the market. The equilibrium price a. increases and the equilibrium quantity decreases. b. decreases and the equilibrium quantity increases. c. is ambiguous and the equilibrium quantity increases. d. decreases and the equilibrium quantity is ambiguous.

d

Refer to Figure. Jonathan receives his first paycheck for working as a cook. To which of the arrows does this transaction directly contribute? a. B only b. A and B c. C only d. C and D

c

Refer to Figure. Suppose Phil and Miss Kay are the only consumers in the market. If the price is $10, then the market quantity demanded is a. 0 units. b. 2 units. c. 4 units. d. 6 units.

d

Refer to Figure. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax (with size represented by segment AB) is imposed, a. consumer surplus decreases by $11. b. producer surplus decreases by $11. c. The deadweight loss amounts to $6 d. All of the above are correct.

b

Refer to Figure. Using the midpoint method, the price elasticity of demand between point Y and point Z is a. 0.5. b. 0.75. c. 1.0. d. 1.3.

b

Refer to Figure. When the price is P1, area C represents a. total benefit. b. producer surplus. c. consumer surplus. d. None of the above is correct.

c

Refer to Figure. Which of the following movements would illustrate the effect in the market for graduation photoshoots resulting from a decrease in the number of photographers? a. Point A to Point B b. Point C to Point B c. Point C to Point D d. Point A to Point D

c

Refer to Figure. Which of the following would cause the supply curve to shift from Supply A to Supply B in the market for t-shirts? a. an increase in the price of t-shirts b. an increase in the price of cotton. c. a decrease in the price of cotton d. a decrease in the number of firms selling t-shirts

b

Strong property rights lead to inefficient allocation of resources in the market because people can't use resources freely. a. true b. false

b

Suppose the government places a $2.5 per-unit tax on this good. The producer surplus after this tax is a. $22.50 b. $33.75 c. $37.50 d. $15.00

b

Suppose the graph above pertains to a firm in a competitive market. This firm will decide to shut down if the price a. is above P3. b. is less than P1. c. is greater than P1 but less than P3. d. is greater than P2.

d

Suppose, the price of a water bottle is $4. The MR and MC curves intersect at a point where the quantity is 200. If the ATC is $2.5, a. Total profit is $500. b. Total loss is $500. c. Total loss is $300. d. Total profit is $300.

15, 10, 5

Sydney places a $30 value on an ice-cream cake, and Zaid places a $35 value on it. P = $25. Each wants to buy one. Calculate total surplus. What is changing if the government imposes a $6 tax on ice-cream cakes? - total surplus without tax = $_____ - total surplus with tax = $_____ - deadweight loss = $_____

d

The Tragedy of the Commons for sheep grazing on common land can be eliminated by the government doing each of the following except: a. assigning land property rights. b. auctioning off sheep-grazing permits. c. taxing sheep flocks. d. subsidizing sheep flocks.

benefits

The ___________ principle says that people should pay taxes based on the benefits they receive from government services.

d

The figure above is a PPF. Unemployment could cause this economy to produce at which point(s)? (HINT: Unemployment implies not all available labor is utilized in the economy) a. Q, S b. Q, S, T c. R, U d. T

d

The fish in a communal pond are an example of: a. Private goods. b. Public goods. c. Club goods. d. Common resources.

a

The long-run market supply curve for a competitive industry a. is horizontal if all firms have identical costs, and costs do not change as firms enter/exit. b. is upward-sloping if all firms have identical costs, and costs do not change as firms enter/exit. c. is horizontal if the long run is long enough. d. is upward-sloping if there is free entry into the industry.

b

The market demand curve for a monopolist is typically a. unit price elastic. b. downward sloping. c. horizontal. d. vertical.

150 [(8-5) x 50]

The red line segment represents the size of a new tax. How much tax revenue does this tax generate for the government?

a

The social value of the 3rd unit of output that is produced is a. $28 b. $18 c. $10 d. $27

c

The social value of the 5th unit of output that is produced is a. $10. b. $14. c. $24. d. $33.

c

There are various ways in which the government can attempt to solve the problem of overuse of common resources. Which of the following is not one of them? a. regulation b. taxes c. turning the common resource into a public good d. turning the common resource into a private good

b

There is no deadweight loss in an economy when there is a monopoly in the market. a. true b. false

c

We assume that the goal of a firm is to a. maximize total revenue b. pay taxes c. maximize profits d. be the biggest supplier in the market

c

What is the formal definition for comparative advantage? a. Responsiveness to the supply of a good or service after a change in its market price b. Advantage in labor, land, and capital over less-developed nations. c. The ability to produce a good at a lower opportunity cost than another producer d. Metric used to measure the cost of one good in terms of inputs required to produce it

b

When the marginal cost (MC) is smaller than average total cost (ATC), a. ATC is increasing b. ACT is decreasing c. ATC is constant d. it is not related

b

When there is a public good, a common problem is that some individuals with enjoy the benefits of the good without paying for it. This is called... a. the free-taker problem. b. the free-rider problem. c. the free-goods problem. d. the Tragedy of the Commons

a

Which of the following statements is not correct? a. Trade does not allow for specialization. b. Trade has the potential to benefit all nations. c. Trade allows nations to consume outside of their production possibilities curve. d. Benefits from trade comes from comparative advantage.

a

Which tax principle says that tax payers with a greater ability to pay taxes should pay larger amounts? a. vertical equity b. horizontal equity c. lump sum taxes d. average taxes

800,650,1250

You are a manager of movie theater. The price you charge is $9 per ticket and you sell Q=100 tickets a day. Assume your fixed cost is $100. - how much profit is the movie theater making? - if you drop the price to $3, you can sell Q=250 tickets. what is the profit? - If you can price discriminate with prices P1= $9 and P2= $3, what will be your profit?

third

_______ degree price discrimination: - different prices for different groups - discounts for seniors at the movies

second

_______ degree price discrimination: - different prices for different quantities

vertical, horizontal

_______ equity is when taxpayers with a greater ability to pay should contribute a larger amount and ________ equity is when taxpayers with similar abilities to pay should contribute the same amount

income

________ tax is the biggest source of revenue for the government

lump-sum

________ taxes are the same amount of tax for every person - minimal administrative burden - most efficient tax possible - no deadweight loss - not possible in real world

sunk cost

a cost that has already been paid and cannot be recovered

perfect competition

a market structure in which a large number of firms all produce the same product - price takers - wheat - milk

monopolistic competition

a market structure in which many companies sell products that are similar but not identical - books, computer game, restaurants, clothing

binding, shortage

a price ceiling set below equilibrium is ________ and causes a labor ________

binding, surplus

a price floor set above equilibrium is ________ and causes a labor _______

collusion (colluding outcome)

agreement among firms in a market about quantities to produce or prices to charge

10, 20

based on the graph: tax incidence for buyers is $_____ and for sellers is $_____

d

both public goods and common resources are a. rival in consumption b. nonrival in consumption c. excludable d. nonexcludable

maximized

equilibrium is efficient when total surplus is ________

club good

excludable and not rival in consumption - cable tv

private good

excludable and rival in consumption - food

present

expectations for the future will be experienced in the _______

proportional tax

high-income and low-income taxpayers pay the same fraction of income

progressive tax

high-income taxpayers pay a larger fraction of their income than low-income taxpayers

regressive tax

high-income taxpayers pay a smaller fraction of their income than low-income taxpayers

total revenue - total explicit costs

how do you calculate accounting profit?

total revenue - total costs

how do you calculate economic profit?

shut down

in the short run, a firm should ______ ____ if TR < VC or P < AVC

negative

is this a positive or negative externality? You are playing soccer for fun with your friends. Devin kicks the ball too hard, hitting a dog someone is walking on the sidewalk by the field.

diseconomies of scale

long run average total costs are increasing as output increases - more expensive to produce each unit when you produce more

increase

marginal product declines as inputs _____ - diminishing marginal product

public good

not excludable and not rival in consumption - national defense an antipoverty programs - free rider problem (receives benefit without paying) - remedy: government provides the good

common resources

not excludable and rival in consumption - fish in the ocean, roads, clean air and water - cannot prevent free riders - each person's use reduces others' ability to use - solutions for tragedy of the commons: regulate number of sheep per family, internalize the externality by taxing sheep, make land private property

MC, MR

profit maximized at quantity where ____ = ____

price discrimination

the business practice of selling the same good at different prices to different customers

inelastic, inelastic

the deadweight loss from a tax of $x per unit will be smallest in a market in which demand is _________ (elastic or inelastic) and supply is ________ (elastic or inelastic)

tax incidence

the division of the burden of a tax between buyers and sellers - for sellers calculate by finding the different between the initial equilibrium price and the price that the sellers receive after introduction of tax - for buyers calculate by finding the difference between price paid and the initial equilibrium price

economic profit

total revenue minus the sum of explicit costs and implicit costs

a

what is the value of C? a. $100 b. $120 c. $150 d. $140

c

what is the value of I? a. $50 b. $40 c. $25 d. $60

b

what is the value of M? a. $410 b. $136.7 c. $102.5 d. $120

d

​Refer to Figure. Suppose the government imposes a $4 tax on the seller in the market above. Which of following statements is true regarding the economic incidence of the tax? a. The seller bears the entire burden of the tax. b. The buyer bears the entire burden of the tax. c. The seller bears 75% of the burden of the tax, and the buyer bears 25% of the burden of the tax. d. The seller and buyer each bear 50% of the burden of the tax.

c

​Refer to Figure. Which of following statements is true based on the conditions in the market? a. ​a shortage will develop when a price ceiling is imposed at a price of $10. b. ​a surplus will develop when a price floor is imposed at a price of $8. c. ​a surplus will develop when a price floor is imposed at a price of $12. d. ​a shortage will develop when a price ceiling is imposed at a price of $14.