ECON 3023 EXAM

Which of the following is NOT true?

Accounting profit is generally lower than economic profit.

Consider a market characterized by the following inverse demand and supply functions: PX = 40 − 4QX and PX = 10 + 2QX. Compute the consumer surplus and producer surplus.

CS is $50 and PS is $25

Which of the following are least likely to be complements?

Cars and trucks

If demand is more inelastic than supply when the market is in equilibrium, the the burden of an imposed tax will be larger for consumers than producers.

True

If apples have an own price elasticity of −1.2, then the demand is currently

Elastic

As incomes rise, you would expect the demand for store brand macaroni and cheese to increase.

False

If the price of bagels increases, then you would expect the demand for cream cheese to increase.

False

The law of diminishing returns says that as you continue to expand your business by adding more of all inputs, your productivity will eventually decline.

False

A higher tax on beer will cause the price of beer to increase. As a result, the demand for beer will fall which will bring the price of beer lower again.

False, A higher tax on beer will cause the price of beer to decrease due to a leftward shift in supply. At the new equilibrium, the quantity demanded for beer will be lower, but that is just a different point on the demand curve. The increase in price does not cause the demand curve to shift.

Free market advocate and Nobel laureate Milton Friedman felt that society was best served if companies only focused on maximizing profits, regardless of the methods they employed or the environment the operated in.

False, Friedman did feel that companies should focus on profit "so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." So that is not regardless of methods employed or the environment they operate it.

Jack and Jill each make candles and cakes. Given a day, Jack can make 4 candles or make 4 cakes. Given a day Jill, can make 3 candles or make 1 cake. ["Jack", "Jill"] has the absolute advantage in making candles and ["Jack", "Jill"] has the absolute advantage in making cakes.

Jack, Jack

You would generally expect the demand in the short term to be less elastic than the demand in the long term.

Less elastic than

If the price of gasoline increases substantially, what would you expect to happen to the equilibrium price and quantity in the market for full size, gas-powered, trucks?

Price and quantity will decrease.

Suppose you produce wooden desks, and government legislation protecting the spotted owl has made it more expensive for you to purchase wood. What do you expect to happen to the equilibrium price and quantity of wooden desks?

Price will increase but quantity will decrease.

Assume that the price elasticity of demand is −0.67 for a certain firm's product. If the firm reduces the price, the firm's managers can expect total revenue to

decrease.

When a demand curve is linear,

demand is elastic at high prices.

An increase in demand will shift the demand curve to the ["left", "right"] and an increase in supply will shift the supply curve to the ["right", "left"] .

right, right

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 20, and MPK = 40 the firm

should use more L and less K to cost minimize.

If the cross-price elasticity between goods A and B is positive, we know the goods are

substitutes.

Consumer surplus is amount of the value created by voluntary transactions that goes to buyers. This is

the value consumers get from a good but do not pay for.

All of the following are examples of market failures except

vigorous price competition eroding firm profits.