econ 210 exam questions

You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. George, who is one of your advisors, says that the best way to avoid a shortage of oranges is to take no action at all. Charles, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Otto, a third advisor, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Which of your three advisors is most likely to have studied economics?

george

Refer to the figure below. This market

has positive externalities.

A monopolist's profits with price discrimination will be _____ than when the firm charged just one price.

higher than

The market demand curve faced by a competitive firm is ______, and it is ______ for a typical monopolist.

horizontal; download sloping

Refer to the figure below The figure shows the market for cheese in Germany. With trade, Germany will

import 400 units of cheese.

According to the circular flow diagram, if Suzy is a worker who delivers flowers for Happy Day Flower Company, she participates

in the markets for factors of production exchanging labor for income.

Economic models

incorporate simplifying assumptions that often contradict reality, but also help economists better understand reality.

Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to

increase by 2.5%, and X is an inferior good.

The prices of asthma drugs and Ferrari cars increase by 10%. We expect total expenditure to:

increase in the market for asthma drugs and decrease in the market for Ferrari cars.

In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker

increased by 6.25 percent between 1998 and 2008.

You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out by drought and that this will cause the price of peanuts to double by the end of the year. As a result, your demand for peanut butter

increases today.

A deadweight loss is a consequence of a tax on a good because the tax

induces buyers to consume less, and sellers to produce less.

Farmer Brown sells sweet corn in a competitive market. When Farmer Brown sells 10 dozen ears of sweet corn, his total revenue is $30. When Farmer Brown sells 20 dozen ears of sweet corn, his total revenue is $60. Farmer Brown's average revenue is ____________ per dozen and his marginal revenue from selling the 20th dozen _________________.

is $3; is also $3

Advocates of antipoverty programs believe that fighting poverty

is an example of the free-rider problem

A firm that shuts down in the short run

is required to pay fixed costs but not variable costs.

Which of the following is not an example of an opportunity cost that is also an implicit cost?

lease payments for the building in which the firm operates

The deadweight loss from a $1 tax per unit will be larger in a market with a

long amount of time for sellers to adjust to a price change and many close substitutes.

Which of the following statements is not correct about how competitive firms differ from monopolies?

monopolies cannot make positive profit in the long run but competitive firms can

Which of the following market structures result in a price greater than marginal cost due to profit-maximization?

monopoly and monopolistic competition

Suppose Plumber Supplies Inc. owns 75% of the world's copper, a key resource used in the production of pipes. Which of the following reasons describes the fundamental barrier to entry for the pipe supplies industry?

monopoly resource

Suppose that the monopoly level of output in a market is 50 units while the competitive level of output is 100 units. If this market became a duopoly and the firms were unable to collude, the output would be

more than 50 units but less than 100 units.

According to resent research discussed in class, the effects of the 2018 trade war on the US economy were

negative, since the benefits for US producers and government revenue were smaller than the losses for US consumers

According to resent research discussed in class, the effects of minimum wages on employment are

negative, small and very different across different workers

Firms in a competitive market are considered price takers because

no individual buyer or seller can affect the market price.

The free-rider problem causes market failure because

people can receive a benefit without paying for it

What is the socially efficient price and quantity?

price = E; quantity = B

A firm in a competitive market will shut down in the short run if

price is below average variable cost

Why does the market system often tend to allocate resources well? Because

prices convey information about costs and preferences and provide incentives to buyers and sellers to alter their decisions when costs or preferences change.

Supply and demand curves contain important information about

producers' costs and consumers' benefits.

If marginal revenue is equal to marginal cost at the current level of output, then

profits are maximized

If the price were $4, a

shortage of 25 units would exist, and price would tend to rise

Which of the following describes an imperfectly competitive firm?

some price setting ability

Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 20 units to 40 units. Using the midpoint method, we can conclude that goods X and Y are

substitutes, and have a cross-price elasticity of 1.67.

Which of the following costs should be ignored by a firm when making production decisions in the short run?

sunk costs

If there is currently a shortage of 20 units of the good, then the law of

supply and demand predicts that the price will rise by $2.

Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a

surplus to exist and the market price of roses to decrease.

Markets tend to work well when

the good is not public and there are no externalities in production

Mitch opened a new shop that sells golf equipment and private lessons. If Mitch is a typical firm owner, he will make decisions that will result in

the greatest level of profit, even if that means higher costs

Which of the following will cause an increase in producer surplus?

the number of buyers in the market increases

As the number of firms in an oligopoly increases,

the price effect decreases, giving firms more of an incentive to increase output.

A production possibilities frontier is bowed outward when

the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

Assume that England and Holland can switch between producing milk and oats at a constant rate. We could use the information in the table to draw a production possibilities frontier for England and a second production possibilities frontier for Holland. If we were to do this, measuring milk along the horizontal axis, then

the slope of England's production possibilities frontier would be -4/10 and the slope of Holland's production possibilities frontier would be -3/4.

Which of the following is considered a characteristic of a competitive market?

there are many buyers and sellers in the market

The breakfast cereal industry spends a substantial amount of revenue on advertising. It is likely that

there is a large variety of breakfast cereals available in the market

What is economic welfare generally measured by?

total surplus

Super Sports Store requires buyers to buy a new soccer ball with every pair of cleats. Economists question the ability of firms to use this practice of _____________ to expand their market power because if buyers are not willing to pay for the soccer ball, ________________.

tying; the most they will pay for the bundle is their willingness to pay for the cleats

A movement from point H to point K could be caused by

unemployment.

Which of the following goods is the best example of a public good?

water that is provided to farms by a cooperatively-owned water district

Suppose Aila and Vika attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that she will bid for a spa weekend at a resort. This maximum is called

willingness to pay.

In the long-run, firms in a competitive market will have

zero economic profit

Frida operates Frida's FroYo and spends $1,200 per week on frozen yogurt, $18 per week on cardboard bowls, $3 per week on spoons, $77 per week on candy and other toppings, and $2,300 on rent for the storefront and equipment. Frida sells her frozen yogurt for $4 per serving and she sells 1,500 servings per week. Frida's average variable cost is about

$0.87.

Consider the figure below. If the equilibrium price rises from $200 to $350, how much does initial producers?

$15,000

A profit-maximizing monopoly would earn profits of

$240

Monopoly profit with perfect price discrimination equals:

$3125

In order to maximize profits, the monopolist should charge a price of

$40.

A movie theater knows that there are two types of moviegoers: senior citizens and everyone else. For a particular movie, there are 20 senior citizens who will pay $6 for a ticket while there are 100 other people who will pay $10 for a ticket. There are 120 seats available in the theater. Suppose the cost to the movie theater of running the movie is $500, which includes the cost of the rights to the movie, a person to run the film, etc. How much profit will the movie theater earn if it engages in price discrimination?

$620

It costs a company $35,000 to produce 700 graphing calculators. The company's cost will be $35,070 if it produces an additional graphing calculator. The company is currently producing 700 graphing calculators. What is the company's marginal cost?

$70

If the monopoly firm does not perfectly price discriminates, then consumer surplus amounts to

$781.25

The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.

- decrease if the economy began at point B and then the tax rate was decreased. - increase if the economy began at point F and then the tax rate was decreased. - decrease if the economy began at point C and then the tax rate was increased. (all of the above)

Suppose x = 1. Then the slope of the market demand curve is

-1/3

What is the opportunity cost of moving from point T to point R?

0

At which of the following prices, if any, could both Denmark and Finland gain from trade?

1.4 pounds of ham per dozen eggs.

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 chair is

1/6 table for Ken and 1/3 table for Traci.

To maximize total surplus, a benevolent social planner would choose _____ units of output and a price of ____ per unit.

150; $15

If the price elasticity of supply is 1.5, and a price increase led to a 3% increase in quantity supplied, then the price increase is about

2.0%.

What is the total output when 4 workers are employed?

200 units

If this firm chooses to produce at the efficient scale, it should produce

3 units of input

At which number of workers does diminishing marginal productivity begin?

3 workers

The table below shows one set of production possibilities. What is the opportunity cost of an increase in the production of wheat from 700 bushels to 1300 bushels?

400 bushels of corn

. Refer to the figure below. This graph represents the automobile industry. Without government intervention, the equilibrium quantity is ______. The socially optimal quantity is ______.

42 units; 35 units

Which of the following combinations of cheese and bread could Spain produce in 24 hours?

6 units of cheese and 1 units of bread.

Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year. There are 30 workers in each country. No trade occurs between the two countries. Boatland produces and consumes 75 units of wheat and 375 units of fish per year while Farmland produces and consumes 375 units of wheat and 75 units of fish per year. If trade were to occur, Boatland would trade 90 units of fish to Farmland in exchange for 80 units of wheat. If Boatland now completely specializes in fish production, how many units of fish could it now consume along with the 80 units of imported wheat?

660 units

Assume that Maya and Miguel each has 60 hours available. If each person divides his/her time equally between the production of mixers and toasters, then total production is

8 mixers and 16 toasters.

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

A 13.33 percent increase in the price of the good.

Suppose the government has imposed a price floor on cheese. Which of the following events could transform the price floor from one that is binding to one that is not binding?

A bovine disease affects half of the cow population resulting in a higher price for milk.

.Which of the following characteristics does not describe a competitive market?

A market in which firms sell differentiated products.

Which of the following is a difference between a monopolistically competitive firm and a firm in a competitive market in the long-run?

A monopolistically competitive firm operates where average total cost is decreasing, while a firm in a competitive market operates where average total costs are minimized.

Which of the following is not an example of the principle that trade can make everyone better off?

All of the above are examples of the principle that trade can make everyone better off.

Which of the following is not an example of price discrimination?

An ice cream shop charges more money for ice cream in a cone versus a cup.

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises.

The statement that "externalities occur because something valuable is unpriced" is true for

Both public goods and common resources

If consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins rises?

Both the equilibrium price and quantity would decrease

Consider the figure below. Relative to a no-trade situation, which of the following comes with trade?

Consumer surplus decreases by $1,000 and producer surplus increases by $1,500.

Which of the following events must result in a lower price in the market for Snickers?

Demand for Snickers decreases, and supply of Snickers increases.

As discussed in class, 77% of professional economists disagree with the following statement: "Connecticut should pass its Senate Bill 60, which states that during a 'severe weather event emergency, no person within the chain of distribution of consumer goods and services shall sell or offer to sell consumer goods or services for a price that is unconscionably excessive'". Why does the vast majority of economists disagree with this statement?

Economists worry that valuable goods and services will be undersupplied if prices cannot freely fluctuate. This will mostly hurt the citizens hit by severe weather events.

Which statement best explains how society benefits from the fact that, when choosing their actions, oligopolists often face a prisoners' dilemma?

Facing a prisoners' dilemma makes it less likely that an oligopoly can function like a monopoly.

If P < ATC then economic profits are positive.

False

Which of the following statements is correct?

In the long run, there are no fixed costs.

How does total revenue change as one moves downward and to the right along a linear demand curve?

It first increases, then decreases.

Which of these is the best example of a barrier to entry?

Kevin obtains a copyright for the new app he invented.

You work as an economist for the local government of Virginia. You get assigned to a cost-benefit analysis project and your manager asks you to recommend different methods to quantify the value of a human life to her. The best method would be:

Look at the risks that people are voluntarily willing to take and how much they are getting paid for taking those risks

A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive?

Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen.

Consider the table below. You have an extra ticket to the Midwest Regional Sweet 16 game in the women's NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. You hold an auction to sell the ticket. Who makes the winning bid and what is his consumer surplus?

Michael; close to but less than $100

Suppose the government decides that 50% of a payroll tax (tax on wages) is paid by firms and 50% is paid by workers. Then is it safe to infer that firms and workers share the burden of the tax equally?

No, the distribution of tax burden depends on the relative elasticities of supply and demand

Which of the four panels illustrates an increase in quantity supplied?

Panel (a).

Which of the following statements best describes the business practice of price discrimination?

Selling the same good at different prices to different customers

Which of the following refers to a controversy over antitrust laws?

Sometimes antitrust laws target a business whose practices appear to be anticompetitive but in fact have legitimate purposes.

Olivia owns a dog whose barking annoys her neighbor, Eric. Suppose that the benefit of owning a dog is worth $500 to Olivia and that Eric bears a cost of $400 from the barking. Assuming that Olivia has the legal right to keep a dog, a private market solution to this problem is that

The current situation is efficient

Your manager wonders whether the firm you work for should raise or lower its product's price to increase total revenue. She provides you with a team of technical analysts and a budget, so you can answer that question. Which of the following number(s) you should compute?

The elasticity of demand.

Which of the following statements is not correct?

The government should never intervene to improve monopoly inefficiency

When constructing a production possibilities frontier, which of the following assumptions is not made?

The quantities of the factors of production that are available are increasing over the relevant time period.

What is one reason to regulate electric companies instead of using antitrust laws to break up these monopolies?

They are usually natural monopolies.

Why are monopolies sometimes social problems?

They may create dead weight losses.

Which of the following is an example of the Tragedy of the Commons?

Unrestricted, unmetered street parking in a city where it is difficult to find a parking spot

Refer to the figure below Panel (a) and Panel (b) each illustrate a $1 tax placed on a market. In comparison to Panel (b), Panel (a) illustrates which of the following statements?

When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic.

A university offers a free shuttle that becomes uncomfortably crowded at lunch time. The shuttle is an example of

a Tragedy of the Commons

If a company released the patents on some of its inventions, allowing anyone to use them without charge, the patented knowledge would go from being

a club good to a public good

If macaroni and cheese is an inferior good, then an increase in

a consumer's income will cause the demand curve for macaroni and cheese to shift to the left.

A firm in a monopolistically competitive market is similar to a monopoly in that they each observe

a downward-sloping demand curve

Refer to the figure below Which of the following would internalize the externality shown in this graph?

a tax of about $0.35 per unit

If the government removes a $4 tax on buyers of restaurant meals and imposes the same $4 tax on sellers of restaurant meals, then the price paid by buyers will

a. not change, and the price received by sellers will not change.

A binding minimum wage

alters both the quantity demanded of labor and the quantity supplied of labor.

Refer to Panel (a) and Panel (b). A shift of the economy's production possibilities frontier from Panel (a) to Panel (b) could be caused by

an improvement in donut production technology.

Curve B represents which type of cost curve?

average variable cost

If the price in this competitive market is $30, this firm will

be indifferent between producing, even though it loses $2,400, and shutting down

Suppose a tax of $2 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?

between $3 and $5

When the "invisible hand" guides economic activity, prices of products reflect

both the values that society places on those products and the costs to society of producing those products.

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic, then:

buyers of the good will bear most of the burden of the tax.

You can determine whether United States will export or import hamburgers (assuming trade is allowed)

by comparing the world price of hamburgers to United States' domestic price of hamburgers.

.Ashley eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana

can be thought of as the total benefit Ashley enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana.

A firm in the short run

cannot avoid paying fixed costs if the firm shuts down

Rent control is an example of a price

ceiling; in cities with rent control mechanisms other than price are used to ration housing.

Studies show that lower cigarette prices are associated with greater use of marijuana; therefore, tobacco and marijuana are

complements

.If there is a reduction in market demand in a competitive market, then in the short run profits will

decrease

According to resent research discussed in class, the effects of rent controls that took place in San Francisco in 1994 confirmed our theory, since rent controls

decreased the quantity supplied of apartments and increased rents in the long run

The price paid by buyers in a market will decrease if the government

decreases a tax on the good sold in that market.

Refer to the figure below. Relative to the free-trade outcome, the imposition of the tariff

decreases imports of the good by 24 units and increases domestic production of the good by 8 units

If marginal revenue is currently less than marginal cost at the current level of output, then

decreasing output by one unit will increase profits for the firm

Good X and good Y are substitutes. If the price of good Y increases, then the

demand for good X will increase.

Consider the figure below. The price ceiling causes quantity

demanded to exceed quantity supplied by 85 units.

Input costs that require an outlay of money by the firm are called ___ costs while input costs that do not require an outlay of money by the firm are called ___ costs

explicit; implicit

Market failures that (in principle) justify government intervention can be caused by

externalities and market power.