Econ Midterm 1

Refer to the figure. In the long run, what do you expect this firm's economic profit or loss to be?

$0

(Figure: Tax on Sellers of Gadgets) According to the figure, what is the amount of the tax that has been imposed on the sale of gadgets?

$1.00

(Table: Excellence Publishing) Refer to the table. Each edited book sells for $50. What is the marginal product of labor for the sixth worker?

$110,000

(Table: Sunshine Flower Vase Co.) Refer to the table. What is the marginal product of labor for the fifth worker?

$180

(Figure: Market Equilibrium) According to the figure, the equilibrium price and quantity are:

$2 and 4 units

(Figure: Foreign Trade 2) Refer to the figure. What is the dollar value of wasted resources as a result of prohibiting trade in this market?

$2,500

(Figure: Demand Tax) The figure illustrates a market for gasoline with a $1 tax imposed on the buyers. What price do sellers receive for a gallon of gasoline in this market?

$2.50

(Figure: Demand Tax) The figure illustrates a market for gasoline with a $1 tax imposed on the buyers. What price do buyers pay for a gallon of gasoline in this market?

$3.50

(Figure: Tax on Sellers of Gadgets) According to the figure, what is the tax revenue that the government collects from the tax on gadgets?

$350

(Figure: Foreign Trade 2) Refer to the figure. What is the dollar value of the deadweight loss created as a result of prohibiting trade in this market?

$5,000

(Figure: Tax on Sellers of Gadgets) According to the figure, what is the amount of the deadweight loss caused by the imposition of the tax on gadgets?

$50

Under Michael Kremer's patent-buyout proposal, the government would buy the rights to the firm in this figure's patent for at least:

$50

(Figure: Dishwashing Detergent) Refer to the figure. Dishwashing detergent contains phosphates that harm marine life. In this figure, what is the external cost of using dishwashing detergent?

$6

(Figure: Costs) Use the figure. At a price of $20, the firm earns profit of

$75

(Figure: Costs) Use the figure. At a price of $20, the firm earns profit of:

$75.

(Figure: Supply and Demand 3) Refer to the figure. If the government sets a price ceiling at $8 in this figure, it will create a deadweight loss of:

$9.

If the price of Good Y falls from $10 to $8, and the quantity demanded of it rises from 1,000 units to 1,200 units, the price elasticity of demand expressed in absolute value is:

0.82.

(Figure: Foreign Trade) Refer to the figure. What quantity would be traded in the absence of any international trade?

1,000

(Figure: Foreign Trade) Refer to the figure. What quantity would be traded in a free-trade environment?

1,400

(Figure: Market for Vaccines) Refer to the figure. The figure represents the market for vaccines with external benefits. The efficient level of output is ________ vaccines, which is ________ than the market's output.

1,800; greater

The U.S. Congress first instituted the minimum wage in:

1938

(Figure: Price Ceiling) Refer to the figure. When a price ceiling of $10 is instituted by the government, consumers are able to buy how many units of the product?

270 units

The elasticity of demand for a good is -0.75. A 4 percent increase in price will cause a:

3 percent decrease in quantity demanded.

Refer to the table. What is the monopolist's profit-maximizing level of output?

4

(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. If the countries create a cartel and agree to mimic monopoly-like behavior, what level of output would each firm produce?

400

Refer to the figure. What is the dollar value of the deadweight loss created as a result of prohibiting trade in this market?

5,000

Use the figure. The profit-maximizing output for this firm is:

6

(Figure: Foreign Trade) Refer to the figure. What quantity would be imported?

600

(Figure: Market Equilibrium) Refer to the figure. At a price of $3, quantity supplied is ______ and quantity demanded is ______, leading to a _______.

6; 2; surplus of 4 units

(Table: Excellence Publishing) Refer to the table. Each edited book sells for $50. How many people will the company hire per year as editing staff if the annual salary is $47,000 per staff member?

7

(Table: Barrels of Oil 2) Refer to the table. How many barrels of oil should the company produce to maximize profit?

8

Refer to the figure. The competitive industry level of output is:

80.

(Figure: Foreign Trade) Refer to the figure. What quantity would be produced domestically?

800

(Figure: Market for Bathroom Cleaner) Refer to the figure. The figure shows a market for cans of a bathroom cleaner that causes environmental damage, imposing costs on people other than the consumers and producers of the cleaner. What is the efficient quantity in this market?

85

(Figure: Dishwashing Detergent) Refer to the figure. Dishwashing detergent contains phosphates that harm marine life. In this figure, the market equilibrium quantity is ___ units and the efficient quantity is ____

9; 6

A price floor is:

A minimum price allowed by law

A tariff is:

A tax on imports

It is often difficult to resolve meddlesome preferences with other values that are considered important such as:

All of the answers are correct. (liberty, rights, religious freedom)

(Figure: Price Floor) Refer to the figure. What are the lost gains from trade as a result of the imposition of the price floor?

Areas (C + F)

What does the law of demand state?

As the price of a good increases, consumers purchase less of that good.

What do subsidies and commodity taxes have in common?

Both policies have a greater impact on the side of the market with the more inelastic curve.

When a monopolist decreases the price of its good, consumers:

Buy more

Which column in the table is correct?

Column 1 Ed > 1 elastic Ed< 1 inelastic Ed =1 unit elastic

If the figure depicts a market for an inferior good, which of the following statements describes what could have happened? (Figure: Price and Quantity 4)

Consumer income decreased, causing an increase in demand and an increase in quantity supplied.

Which of the following could explain the figure?

Consumer income increases in the market for a normal good.

Which of the following statements is TRUE?

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and its market price.

How did the spread of the Internet affect the market for newspapers?

Demand decreased, causing the price to fall.

Why is the war on drugs hard to win?

Drug dealers get greater revenue following successful government prohibition efforts.

The market equilibrium is not efficient when the consumption of a good creates external costs, which cause social costs to be:

Greater than the private cost

Market solutions to externality problems work when:I. property rights are easily identifiable.II. transaction costs are relatively low.III. the market quantity is above the efficient quantity.

I and II only

Economic policies of protectionism include: I. reduced trade barriers. II. tariffs. III. quotas.

II and III only

Which of the following statements is TRUE? The buyer will pay more of the tax burden if: I. the good is a luxury good. II. the good is a necessity. III. the good has no substitutes.

II and III only

A firm would prefer that its product demand curve is:

Inelastic

A Pigouvian tax:

Is levied on a good that creates a negative externality and should be set equal to the external cost to eliminate the deadweight cost.

What is the profit maximization condition for a monopolist?

MR = MC

In this figure, the monopolist's marginal revenue curve is:

MR2

What is thinking on the margin?

Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity.

Which of the following probably has the most elastic demand?

McDonald's hamburgers

Which one of the following statements is correct?

Monopoly profit encourages firms to research and develop new drugs.

To maximize profit, a firm in a competitive market increases output until:

P = MC.

Profit is positive whenever:

P > AC

Refer to the figure. Which price and quantity combination represents the efficient equilibrium?

P2 and Q1

(Figure: Efficient Market Outcome) Refer to the figure. The efficient price and quantity are, respectively:

P2 and Q1.

Why are there more births in the United States in late December than in early January?

Parents get a tax deduction if babies are born before the year end.

An external cost is a cost paid by:

People other than the consumer and the producer trading in the market

Refer to the figure. Which of the points representing various consumption possibilities for the country portrayed above is only attainable through foreign trade?

Point C

Why have systems similar to New Zealand's "individual transfer quota" system NOT been able to protect all animal life that is in danger of being overexploited?

Property rights are difficult to establish in animals that migrate over borders.

A tariff___ the world supply of a good

Reduces

Which of the following laws makes cartel behavior illegal?

Sherman Antitrust Act of 1890

Which of the following best describes the principle of comparative advantage?

Someone has the ability to produce the same good for the lowest opportunity cost.

people have different preferences.

Someone has the ability to produce the same good for the lowest opportunity cost.

If consumers pay 100 percent of a commodity tax, what could one conclude?

The commodity in question has a perfectly elastic supply curve.

The social cost is:

The cost to everyone

What is the "invisible hand"?

The idea that people pursuing their own self-interest actually benefit the public at large.

Why is it less costly to attend college during a recession?

The opportunity cost is lower during a recession because there are fewer labor market opportunities.

Refer to the figure. It shows two different supply curves. Based on the graph, which statement is TRUE?

The same price increase would cause a bigger increase in the quantity supplied along curve A.

If the demand increases, what happens with the supply curve?

There is a movement rightward along the supply curve.

Which of the following describes how cartel members cheat?

They produce more output than they promised.

What is the importance of the Clean Air Act of 1990?

Under this act, the EPA distributes pollution allowances to electricity producers.

Products that create external benefits are:

Underconsumed because consumers only consider the private benefits of consumption

Refer to the figure. Which of the following would represent the wage and number of workers of unionized jobs?

W2; N1

What negative externality does antibiotic use create?

With greater use of antibiotics, bacteria became increasingly resistant to them, thus increasing the likelihood of people dying from drug- resistant bacteria.

Do price ceilings misallocate resources?

Yes, because people who value the good the most are unable to bid it away from low-valued uses.

For an inferior good, higher income results in:

a decrease in demand.

Which kind of industry would have a downward-sloping long-run supply curve?

a decreasing cost industry

A decrease in demand refers to:

a leftward shift of the demand curve.

A trade quota is:

a restriction on the quantity of goods that can be imported.

Which of the following choices contains only factors that cause the supply curve to shift to the right?

a rise in technology, a fall in the costs of production, a fall in taxes on output

An example of a monopoly would be:

a sole provider of electrical power in a city.

In the market for fertilizer, an:

advance in technology will increase the supply of fertilizer.

A constant cost industry is one in which:

an increase in overall industry output does not lead to an increase in overall industry costs.

In the figure, a movement from S1 to S2 represents:

an increase in supply.

In Texas, what does the term nodding donkey mean?

an oil pump

When customers drive discrimination, owners:

are not always so keen to hire undervalued, victimized workers.

Refer to the figure. Which of the following answers correctly indicates the profit earned by this monopolist at the profit-maximizing quantity?

area A

To maximize profits, a firm in a highly competitive industry should set its price:

at the market price

The yearly shortage of Super Bowl tickets implies that the price of Super Bowl tickets is:

below the equilibrium price.

If a tax is imposed on a market with inelastic demand and elastic supply:

buyers will bear most of the burden of the tax.

In general, wages are determined:

by the skills of the worker and the productivity of the entire economy.

An individual labor supply curve:

can be positively sloped, vertical, or negatively sloped at different ranges.

Transaction costs:

can keep private parties from solving externality problems.

A tax on the seller of a product:

causes the supply curve for the product to shift to the left.

Which of the following is NOT an example of bundling?

cell phones and phone calls

Ocean tuna is an example of a:

common resource.

One way to achieve political success is to:

concentrate benefits and diffuse costs.

The quantity demanded of a good or service is the amount that:

consumers are willing and able to buy at a given price.

A government's decision to subsidize the production of insulin for people with diabetes would mostly benefit the:

consumers of insulin.

Government subsidies to California cotton farmers:

create deadweight losses because the billions of dollars of resources used to grow cotton in deserts could be put to higher-valued uses.

Under perfect price discrimination:

each customer is charged his or her maximum willingness to pay.

An industry is said to be perfectly competitive when:

each firm has virtually no influence over the price of its product.

Political business cycles occur when:

economic conditions tend to improve immediately before elections but then worsen afterwards.

If market demand decreases:

equilibrium price and quantity will both decrease.

If market supply increases:

equilibrium price will decrease but equilibrium quantity will increase.

(Figure: Market Equilibrium) Refer to the figure. At a price of $1, the market is characterized by a(n):

excess demand of 4 units.

Natural monopolies:

exist when one firm can produce the market output at a lower cost than two or more firms.

The oil industry is an increasing cost industry because:

expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations.

The demand for oil is inelastic because there are:

few substitutes for oil in its major use.

A meddlesome preference is a preference:

for other people's certain behaviors, even when their current actions do not have a direct effect on you.

Markets tend to be inefficient when it comes to public goods because:

free riders lead to an underproduction of the good.

Command and control refers to:

government regulations that directly limit the production or use of a good.

To maximize profit the monopolist should set a:

higher price in markets with more inelastic demand.

In free markets, shortages lead to:

higher prices.

The elasticity of supply measures:

how responsive the quantity supplied is to a change in the price of a good or service.

Economists assume that people respond to:

incentives

Trade tends to:

increase the wages of both high- and low-productivity countries.

If producers expect the price of a good to fall in the future, they might:

increase their supply of goods out of storage today.

With a subsidy to producers, supply:

increases.

(Figure: PPF Goods X & Y) Refer to the figure. Point A represents an allocation of resources that is:

inefficient.

Which of the following is NOT a source of monopoly power?

inelastic demand for the product

The supply of ancient Egyptian papyrus manuscripts is probably:

inelastic.

Special interest groups are rationally:

informed.

Who does protectionism hurt?

international producers and domestic consumers

An external cost:

is a cost paid by people other than the producer or consumer trading in the market.

A firm earning zero economic profits:

is earning just "normal profits"

Imagine a free market in which at a price of $10, quantity supplied is 40 units and quantity demanded is 50 units. Equilibrium price in this market:

is greater than $10.

Imagine a free market in which at a price of $10, quantity supplied is 50 units and quantity demanded is 40 units. Equilibrium price in this market:

is less than $10.

At a price of zero, there is a(n):

kidney shortage.

A price ceiling is an

legally established maximum price that can be charged for a good.

The demand curve is inelastic if the absolute value of the elasticity is:

less than 1.

Evidence suggests that résumés with names closely associated with African Americans received:

less than average number of interview requests.

The opportunity cost of attending college is:

lost wages from not working full time.

In free markets, surpluses lead to:

lower prices

Oligopolies tend to set prices:

lower than monopolies but higher than competitive markets.

In a market with external costs, the market price is:

lower than the efficient price.

The market demand curve for labor is based on the:

marginal product of labor.

A firm maximizes profits when:

marginal revenue equals marginal cost

The power to raise price above marginal cost without fear that other firms will enter the market is:

market power.

An individual's labor supply curve:

may be backward bending if the wage is high enough.

PETA opposes the purchase of purebred dogs as pets. This is an example of:

meddlesome preferences.

When a good has relatively few substitutes:

monopolists will tend to increase their markup for the good.

Laws requiring employers to provide health insurance to their employees put the burden of health insurance costs:

mostly on employees if labor supply is less elastic than labor demand.

Which of the following is a list of public goods only?

national defense, a lighthouse, smog reduction

(Figure: Government Price Controls) Refer to the figure. If the government sets the price ceiling at $31, there will be:

no effect on the market.

Generating electricity:

no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly.

A cable television show like The Sopranos, for example, is:

nonrival but excludable.

If a tax is imposed on sellers of a product, the demand curve will

not shift.

If a tax is imposed on sellers of a product, the demand curve will:

not shift.

The most important determinant of the elasticity of demand is the:

number of substitutes.

Economists consider tariffs to be:

obstacles that reduce gains from trade.

An excludable good is:

one where people can be prevented from using the good.

Which of the following is an example of an implicit cost of production?

opportunity cost

Recall Chapter 1's opening story about the British sea captains and the convicted felons. Instead of paying the sea captains for each prisoner placed on board the ships in Great Britain, an economist suggested:

paying for each prisoner who walked off the ship in Australia.

Opponents of kidney sales argue that:

paying someone to donate a kidney is exploitative.

Trade makes people better off when:

people have different preferences.

In competitive markets, the demand curve faced by the individual firm is:

perfectly elastic

The acronym PAC stands for:

political action committee.

(Figure: Government Price Controls) Refer to the figure. The government enacts a price control causing a shortage of 15 units of the good. Therefore, the ________ is set at ________.

price ceiling; $10

Rent controls are:

price ceilings on rental housing.

What are factors that shift the demand curve?

price of substitutes, tastes, price of complements

Which variable does NOT shift the demand curve?

price of the good itself

Firms will enter an industry when the:

price rises above the minimum of the average total cost curve.

Wage rates are primarily based on the:

productivity of labor.

(P - AC) × Q =

profit

(P - AC) × Q =

profit.

A free rider is a person who:

receives the benefits of a good but avoids paying for it.

Flexible prices ensure that:

resources are allocated to their highest-valued uses.

The American Medical Association:

restricts the supply of doctors.

If the demand for a good is elastic, then:

revenues decrease when the price goes up.

A tragedy of the commons often results from ______ and ______.

rivalry; nonexcludability

In most cases, trade restrictions will:

save some jobs and destroy other jobs.

(Figure: PPF Mexico & United States) Use the above figure in which both Mexico and the United States each have 24 units of labor. Mexico has a comparative advantage in ______ and the United States has a comparative advantage in ______.

shirts; computers

Price ceilings create five important effects:

shortages, reductions in product quality, wasteful lineups, a loss from gains to trade, and a misallocation of resources.

The demand curve:

shows how much buyers are willing and able to buy at different prices.

The supply curve:

shows how much sellers are willing and able to sell at different prices.

(Figure: PPF Mexico & United States) Use the figure in which both Mexico and the United States each have 24 units of labor. The opportunity costs of producing one computer are:

six shirts for Mexico and one shirt for the United States.

The market supply curve for labor:

slopes up.

Externalities are

sometimes good and sometimes bad

Evidence from studies by some economists on professional basketball found there has been:

statistical discrimination against white European players.

In a world of perfect information:

statistical discrimination would not exist.

A firm with no competitors:

still faces a downward-sloping demand curve

Gun buyback programs will be less effective if the:

supply of guns is more elastic.

A viable government solution to an external cost is a:

tax on the party producing the cost.

The elasticity of demand:

tells us how responsive consumer purchases are to price changes.

A monopoly is a firm:

that sets price above marginal cost without concern that other firms will enter the industry.

Economies of scale are:

the advantages of large-scale production that reduce average cost as quantity increases.

Total producer surplus equals:

the area above the supply curve and beneath the market price.

Marginal cost is:

the change in total cost from producing one more unit of output.

To economists, the term consumer surplus means:

the consumer's gain from trading.

If price is less than average cost,:

the firm's maximum profit is a loss.

A firm will continue to hire workers as long as:

the marginal product of labor is greater than the wage.

Tying is:

the practice of a firm selling one product that requires the consumer to purchase another of the firm's products.

The prisoner's dilemma refers to a situation in which:

the pursuit of individual interests leads to an outcome that is in the best interest of no one.

The question of who pays the greater amount of a commodity tax is determined by:

the relative elasticities of demand and supply.

When the price of inputs increase:

the supply curve shifts up and to the left.

Deadweight loss is:

the total of lost consumer and producer surplus when not all mutually profitable gains from trade are exploited.

Cartels are not always successful because:

their members have profit incentives to cheat on the agreement.

Profit is defined as:

total revenue minus total cost.

Economics is the study of:

trade-offs when making decisions.

(Figure: Monopoly Markup) Refer to the figure. Consumer surplus under monopoly is represented by:

triangle abc.

(Figure: Monopoly Markup) Refer to the figure. Consumer surplus under competition is represented by:

triangle adf

(Figure: Monopoly Markup) Refer to the figure. The deadweight loss attributable to monopoly is:

triangle c,e,f.

An increase in demand shifts the demand curve:

up and to the right.

Refer to the figure. If price falls from $60 to $40, total revenue goes ________, so demand is ________.

up by $120; elastic

Statistical discrimination is:

using information about group averages to make conclusions about individuals.

A perfectly inelastic supply curve is a:

vertical line indicating that even a very large increase in price won't increase the quantity supplied.

When comparing a monopoly with a competitive industry, monopoly quantity:

will be lower, and monopoly price will be higher, than that of a competitive firm.

The Federal minimum wage causes unemployment MOSTLY among:

young unskilled workers.