ECON TESTS 1-4
the graph represents the tobacco industry. the socially optimal price and quantity are
$1.80 and 35 units, respectively
the average fixed cost of producing 5 posters is
$2
the maximum profit available to the firm is
$5
tom mows Stephanies lawn for $25. toms opportunity cost of mowing Stephanie's law is $20 and Stephanie's willingness to pay tom to mow her lawn is $28 If Stephanie hires tom to move her lawn, toms producer surplus is
$5
suppose a firm in a competitive market faces the following revenue and costs: the marginal cost of producing the 4th unit is
$8
Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspaper (iv) interest that Petes money was earning before he spent his savings to set up the shoe shine business
(i) and (ii) only
suppose a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. which of the following statements is correct (i) marginal revenue = $4 (ii) average revenue = $100 (iii) total revenue = $1600
(i) and (iii) only
price discrimination adds to social welfare in the form of (i) increased total surplus (ii) reduced costs of production (iii) increased consumer surplus
(i) only
a government imposed price $16 in this market could be an example of a (i) binding price ceiling (ii) non-binding price ceiling (iii) binding price floor (iv) non binding price floor
(ii) and (iii) only
Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can wash two windows per hour or he can iron five shirts per hour.
-susan has an absolute advantage over Paul in washing windows - susan has a comparative advantage over Paul in washing windows -Paul has a comparative advantage over susan in ironing shirts
Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is
1
Using the midpoint method, the price elasticity of demand between point A and point B is
2.5
suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all income above $50,000. what is the average tax rate when income is $60,000
21.7
if Noah has a taxable income of $43,000, his marginal tax rate is
24%
what is the average tax rate for a person who makes $130,000
40%
with free trade the country imports
60 units of the good
total surplus in this market after trade is
A+B+C+D
the efficient scale of production occurs at which quantity
C
producer surplus before the tax was levied is represented by area
V, W, X
which of the following statements is not correct
When the price is $6, there is a surplus of 8 units.
the tax on gasoline is an example of
a Pigovian tax
which of the following would be considered a private good?
a bottle of natural mineral water
The movement from D' to D could be caused by
a decrease in the price of a substitute
A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of
a direct regulation of an externality
which of the following goods is rival in consumption and excludable
a home
which of the following is not an example of a barrier to entry
a soybean farmer is the first in her county to use a new brand of fertilizer
which of the following statements about a well-maintained yard best conveys the general nature of the externality
a well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood
total revenue minus only explicit costs is called
accounting profit
A supply curve slopes upward because
an increase in price gives producers an incentive to supply a larger quantity
the movement from point A to point B on the graph shows
an increase in quantity demanded
A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100,
average variable cost is $3
which of the following statements regarding competitive market is not correct
because of firm location or product differences, some firms can charge a higher price than other firms and still maintain their sales volume
a shortage results when a
binding price ceiling is imposed on a market
when a tax is levied on sellers of tea
both sellers and buyers of tea are made worse off
in a market economy, supply and demand determine
both the quantity of each good produced and the price at which it is sold
a monopoly..
can set the price it charges for its output but faces a horizontal demand curve so It can earn unlimited profits
Since natural monopolies have a declining average cost curve, regulating natural monopolies by setting price equal to marginal cost would
cause the monopolist to operate at a loss
Last year, Shelley bought 6 pairs of designer jeans when her income was $40,000. This year, her income is $50,000, and she purchased 10 pairs of designer jeans. Holding other factors constant, it follows that Shelley
considers designer jeans to be a normal good
the shift from D to D' is called
decrease in demand
Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to
decrease the total revenue of wheat farmers
which of the following events must cause equilibrium price to fall
demand decreases and supply increases
If the number of buyers in a market decreases, then
demand will decrease
the fundamental reason that marginal cost eventually rises as output increases is because of
diminishing marginal product
Congresswoman Gaga represents a state in which several firms manufacture furniture. She wants to impose tariffs on all imported furniture. Which of the following is the least likely consequence of such tariffs?
domestic furniture producers will have a higher rate of technological advance
When new firms have an incentive to enter a competitive market, their entry will
drive down profits of existing firms in the market
In designing a tax system, policymakers have two objectives that are often conflicting. They are
efficiency and equity
which of the following is not a characteristic of a competitive market
entry is limited
the unique point at which the supply and demand curves intersect is called
equilibrium
Encouraging firms to invest in research and development and individuals to engage in creative endeavors such as writing novels is one justification for
government-created monopolies
Farm programs that pay farmers not to plant crops on all their land
help farmers by increasing total revenue in the market but hurt consumers by raising food prices
to determine whether a good is considered normal or inferior, one could examine the value of the
income elasticity of demand
the deadweight loss from a tax of $5 per unit will be smallest in a market with
inelastic supply and inelastic demand
absolute advantage is found by comparing different producers'
input requirements per unit of output
when the tax is placed on this good, the quantity sold
is 300, and buyers effectively pay $16
infant industry argument
is based on the belief that protecting industries when they are young will pay off later
Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action a. is always needed, because private solutions can never be attained. b. is needed when private solutions fail to arise. c. will be needed only to correct for positive externalities. d. will be needed only to compensate consumers.
is needed when private solutions fail to arise
the firm should shut down if the market price is
less than $4.50
In which market will the majority of the tax burden fall on buyers?
market b
economists assume that the typical person who starts her own business does so with the intention of
maximizing profits
When externalities exist, buyers and sellers
neglect the external effects of their actions, and the market equilibrium is not efficient.
both public goods and common resources are
nonexcludable
if the price is P2 in the short run, what will happen in the long run
nothing. the price is constant with zero economic profits, so there is no incentive for firms to enter or exit the industry
which of the following is not a characteristic of a monopoly
one buyer
If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?
one year after the price increase
the rate of tradeoff between producing chairs and producing couches is constant in
panel b
which of the following is not an administrative burden of our tax system
paying the taxes owed
For which pairs of goods is the cross-price elasticity most likely to be positive?
pens and pencils
the provision of a public good generates
positive externality and the overuse of a common resource generates a negative externality
suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. when the price of wheat is $3 per bushel, farmers can sell 8 million bushels. which of the following statements is true? the demand for wheat is
price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers
Goods that are excludable include both
private goods and club goods
Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?
produce fewer custom made shoes
the price elasticity of demand measures how much
quantity demanded responds to a change in price
Entry into a market by new firms will increase the
supply of the good
a tax on an imported good is called a
tariff
the unfair-competition argument might be cited by an American who believes that
the French government's subsidies to French farmers justify restrictions on American imports of French agricultural products
a $1000 tax paid by a poor person may be a larger sacrifice than a $10,000 tax paid by a wealthy person. is an argument in favor of
the ability-to-pay principle
If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of
the benefits principle
production possibilities frontier
the combination of output that an economy can produce
which of the following is not a commonly advanced argument for trade restrictions
the efficiency argument
Today's demand curve for gasoline could shift in response to a change in
the expected future price of gasoline
on a 100-acre farm, a farmer is able to produce 3000 bushels of wheat when he hires 2 workers. he is able to produce 4,400 bushels of wheat when he hires 3 workers. which of the following possibilities is consistent with the property of diminishing marginal product?
the farmer is able to produce 5,600 bushels of wheat when he hires 4 workers
Which of these curves is the competitive firm's short-run supply curve?
the marginal cost curve above average variable cost
The amount of deadweight loss that results from a tax of a given size is determined by
the price elastics of demand and supply
a movement along the supply curve might be caused by a change in
the price of the good or service that is being supplied
(Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate) -We could use the information in the table to draw a production possibilities frontier for Japan and a second production possibilities frontier for Korea. If we were to do this, measuring airplanes along the horizontal axis, then
the slope of Japan's production possibilities frontier would be -5 and the slope of Koreas production possibilities frontier would be -3
many economists believe that the US tax system would be made more efficient if the basis of taxation were changed so that people paid taxes, more so than they do now, based on
their spending rather than their income
efficiency is attained when
total surplus is maximized
which of the following arguments for trade restrictions is ofter advanced
trade restrictions are sometimes necessary for national security
under which of the following scenarios would a park be considered a public good
visitors can enter the park free of charge and there are always plenty of empty picnic tables
which of the following quotations illustrated the tragedy of the commons
what is common to many is least taken care of, for all men have greater regard for what is their own than for what they possess in common with others
opportunity cost of an item is
what you give up to get an item
An economy's production possibilities frontier is also its consumption possibilities frontier
when the economy is self sufficient
which of these statements best represents the law of demand
when then price of a good decreases, buyers purchase more of the good
tradable pollution permits
will be more valuable to firms that can reduce pollution only at high costs
If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then
Iowa has the comparative advantage in the production of corn
Both Bill and Mary produce t-shirts and hats. If Bill's opportunity cost of 1 t-shirt is 4 hats and Mary's opportunity cost of 1 t-shirt is 3 hats, then
Mary has a comparative advantage in the production of t shirts
a profit-maximizing monopoly's total revenue is equal to
P4 x Q2
total revenue equals
Price x Quantity
to maximize its profit, a monopolist would choose which of the following outcomes?
Q=30 and P=60
consumer surplus before the tax was levied is represented by area
R, S, U
