final econ exam (test 1, 2, 3)

10) For the Fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat 100 meals, your marginal cost of the 100th meal is: A) $0. B) $0.25. C) $6. D) $4.

A) $0.

15) The marginal benefit of the 5th unit of activity is: A) $10 B) $50 C) $44 D) $5

A) $10

21) Suppose the market demand curve is given by P = 42 - 4QD and the market supply curve is given by P = 2QS, where P = Price and Q = Quantity. In this market, equilibrium price is __ and quantity is ____. A) 14, 7 B) 7, 14 C) 7, 3.5 D) 14, 14

A) 14, 7

16) According to the Cost-Benefit Principle, how many units of this activity should be carried out? A) 3 B) 6 C) 1 D) 4

A) 3

7) Which of the following is the most likely to be a fixed factor of production at a pizza restaurant? A) The size of the seating area. B) The number of waiters. C) The amount of electricity. D) The amount of pizza dough.

A) The size of the seating area.

8) Of the labeled points, only ________ are efficient. A) W, X, Y, Z, and V B) X, Y, and Z C) T and U D) W, X, Y, Z, V, and T

A) W, X, Y, Z, and V

20) Refer to the figure above. Demand for coffee last Monday is shown in bold and labeled D(Monday). On Tuesday, the news featured a story explaining that the coffee crop has been contaminated with disease- causing bacteria. The following week: A) demand shifted to D(A) because some people decided to stop drinking coffee in light of the health hazard. B) the demand function remained at D(Monday), but the quantity demanded decreased. C) demand shifted to D(B) in anticipation of future price increases. D) there would be no change in either the demand function or the quantity demanded because not enough time had passed for the report's effects to be felt.

A) demand shifted to D(A) because some people decided to stop drinking coffee in light of the health hazard.

3) Suppose Mary is willing to pay up to $15,000 for an used Ford pick-up truck. If she buys one for $12,000, her ________ would be ________. A) economic surplus; $3,000 B) economic surplus; $12,000 C) benefit; $12,000 D) cost; $15,000

A) economic surplus; $3,000

12) According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively: A) larger and larger quantities of the variable factors of production. B) larger and larger quantities of the fixed factor of production. C) smaller and smaller quantities of the variable factors of production. D) constant quantities of the variable factors of production.

A) larger and larger quantities of the variable factors of production.

9) During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ________ utility from eating the fourth pie than from eating the second pie. A) less B) the same amount of C) less variable D) more

A) less

2) The additional utility gained from consuming an additional unit of a good is called: A) marginal utility B) an util C) total utility D) costly utility

A) marginal utility

6) As the market price of a service increases, more potential sellers will decide to perform that service because: A) more potential sellers will find that the market price exceeds their reservation price. B) higher prices lead to lower opportunity costs. C) higher prices result in higher revenue. D) it's more prestigious to produce high-priced services.

A) more potential sellers will find that the market price exceeds their reservation price.

6) One thing that distinguishes normative economic principles from positive economic principles is that: A) normative principles tell us how people should behave, and positive principles tell us how people will behave. B) normative principles reflect social norms, and positive principles reflect universal truths. C) normative principles tell us how people will behave, and positive principles tell us how people should behave. D) normative principles are pessimistic and positive principles are optimistic.

A) normative principles tell us how people should behave, and positive principles tell us how people will behave.

10) Suppose that at your current consumption of two goods, A and B, MUA/PA = 25 and MUB/PB = 20. In order to maximize, your utility you should: A) purchase more of A and less of B. B) leave your spending unchanged. C) purchase less of A and B. D) purchase less of A and more of B.

A) purchase more of A and less of B.

24. Kai brings 20 cookies to his class Easter party, but only 18 people show up. Which of the following allocations of cookies is Pareto efficient? A. Kai gets all of the cookies. B. Kai gives one cookie to each person who shows up, and throws away the extra 2 cookies. C. Kai doesn't give any of the cookies out because he cannot fairly divide them. Instead he throws all the cookies away. D. Kai keeps 5 cookies for himself and gives 5 cookies to his best friend David, and throws the rest away.

A. Kai gets all of the cookies.

6. The invisible hand principle implies that markets tend to A. generate the most economic surplus possible. B. give all of the available surplus to sellers. C. destroy more value than they create. D. encourage consumers to focus too much on material things.

A. generate the most economic surplus possible.

3. We can say that the allocation of resources is Pareto efficient if A. no one can be helped without harming at least one person. B. surplus is distributed fairly. C. someone can be helped without harming at least one person. D. firms' profits are maximized.

A. no one can be helped without harming at least one person.

7. The present value of the promise of $100 a year from now is equal to A. the amount of money you would have to put in the bank today to have a balance of $100 in one year. B. the amount of interest $100 would earn in one year in a bank. C. the balance on a savings account in one year if you deposited $100 in the account today. D. $100.

A. the amount of money you would have to put in the bank today to have a balance of $100 in one year.

17) You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. Should you go to the concert instead of working Saturday? A) Yes, the benefit of going to the concert is equal to the cost. B) No, the benefit of going to the concert is less than the cost. C) No, because there are no benefits of going to the concert. D) Yes, the benefit of going to the concert is more than the cost.

B) No, the benefit of going to the concert is less than the cost.

24) If country A can produce more of practically everything than can country B, then which of the following statements is true? A) Country B cannot have a comparative advantage in the production of any good that country A wants to buy. B) Trade can benefit both countries. C) Country B has no incentive to trade with country A. D) Country A has no incentive to trade with country B.

B) Trade can benefit both countries.

12) The equilibrium price and quantity of any good or service is established by: A) government regulations. B) both demanders and suppliers. C) only demanders. D) only suppliers.

B) both demanders and suppliers.

4) The demand for a good is elastic if the price elasticity of demand is: A) equal to one. B) greater than one. C) equal to zero. D) less than one.

B) greater than one.

11) Production possibilities curves for large economies are generally bow-shaped because: A) specialization gives some producers a comparative advantage. B) opportunity costs tend to increase with increases in production. C) as more resources are used to produce a good, those resources become less expensive. D) opportunity costs tend to decrease with increases in production.

B) opportunity costs tend to increase with increases in production.

8) If a consumer buys two goods, the rational spending rule requires that the: A) total expenditure on the two goods be equal. B) ratio of marginal utility to price be equal for the two goods. C) ratio of average utility to price be equal for the two goods. D) ratio of total utility to price be equal for the two goods.

B) ratio of marginal utility to price be equal for the two goods.

According to the Cost-Benefit Principle, you should go see the latest Star Wars movie with your friends this week-end if: A) the average benefit you get from going to the movies is greater than the average cost of a ticket. B) the extra benefits of seeing the movie are greater than the extra costs of seeing the movie. C) you really like Star Wars. D) you can afford to go to the movies.

B) the extra benefits of seeing the movie are greater than the extra costs of seeing the movie.

2. Implicit costs are defined as A. the actual payments a firm makes to its factors of production. B. the opportunity costs of the resources supplied by the firm's owners. C. costs that do not vary with production. D. costs that cannot be recovered at the time a decision is made.

B. the opportunity costs of the resources supplied by the firm's owners.

21) Suppose that the equilibrium price of DVD players increases and the equilibrium quantity increases. Which of the following best fits the observed data? A) An increase in demand coupled with a decrease in supply. B) A decrease in demand with supply constant. C) An increase in demand with supply constant. D) An increase in demand coupled with an increase in supply.

C) An increase in demand with supply constant.

5) Average variable cost is defined as: A) Total cost divided by number of workers B) Variable cost divided by price C) Variable cost divided by total output D) Total cost divided by total output

C) Variable cost divided by total output

4) The entire group of buyers and sellers of a particular good or service makes up: A) the equilibrium. B) only the demand curve. C) a market. D) only the supply curve.

C) a market.

3) The long run is best defined as: A) the period of time between annual accounting reports. B) one year or more. C) a period of time sufficiently long that all factors of production are variable. D) a period of time sufficiently long that at least one factor of production is fixed.

C) a period of time sufficiently long that all factors of production are variable.

11) Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin, therefore, is A) perfectly inelastic. B) unit elastic. C) inelastic. D) elastic.

C) inelastic.

17) Suppose you learn that in 1900, households spent about 40 percent of their budget on food, and today, they spend about 10 percent of their budget of food. All else equal, this suggests that the price elasticity of demand for food: A) has always been very high. B) is probably higher now than it was in 1900. C) is probably lower now than it was in 1900. D) is probably negative.

C) is probably lower now than it was in 1900.

14) If a production process exhibits diminishing returns, then as output rises: A) average total cost will eventually decrease. B) total fixed cost will eventually increase. C) marginal cost will eventually increase. D) total revenue will eventually decrease.

C) marginal cost will eventually increase.

5) If the demand for a good decreases as income decreases, it is a(n): A) complementary good. B) inferior good. C) normal good. D) substitute good.

C) normal good.

1) The percentage change in quantity supplied that results from a 1 percent change in price is known as the: A) cross-price elasticity of demand. B) cross-price elasticity of supply. C) price elasticity of supply. D) slope of the supply curve.

C) price elasticity of supply.

22) Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product of producing doughnuts. One would expect: A) the supply of doughnuts to increase. B) the supply of doughnuts to decrease. C) the supply of doughnut holes to decrease. D) the supply of doughnut holes to increase.

C) the supply of doughnut holes to decrease.

21. The economically efficient amount of production is: A. 1 B. 2 C. 3 D. 4

C. 3

23. A monopolist that can price discriminate perfectly will sell: A. 1 B. 2 C. 3 D. 4

C. 3

9. If the monopolist maximizes his/her profit, s/he will produce ___ units. A. 5 B. 7 C. 9 D. 18

C. 9

18. When the Wall Street Journal compared the performance of stocks picked by mutual fund managers to randomly picked stocks, A. the managers' picks performed much better. B. the random picks performed much better. C. both sets of picks were equally bad. D. there was no difference in the returns to both sets of picks.

C. both sets of picks were equally bad. OR D. there was no difference in the returns to both sets of picks.

22) Suppose the market supply curve is given by P = 4+ 2QS . The elasticity of supply at a price of 8 is: A) 0.125 B) 0.5 C) 1.2 D) 2

D) 2

24) Suppose the market supply curve is given by P = 4+ 2QS . The marginal cost to produce the 10th unit is: A) 2 B) 3 C) 20 D) 24

D) 24

13) Fran runs a doughnut shop in a tiny 3-person town. The table below shows the quantity demand by the three townspeople at various prices. When the price of a doughnut is 50 cents, what is the market demand for doughnuts? A) 31 doughnuts B) 5 doughnuts C) 20 doughnuts D) 9 doughnuts

D) 9 doughnuts

23) What might cause a supply function to shift to the left today? A) A decrease in the price of one of the inputs to making the product. B) An increase in the product's own price. C) An expectation that the product's price will fall in the future. D) An expectation that the product's price will rise in the future.

D) An expectation that the product's price will rise in the future.

16) For which of the following products is demand likely to be least elastic with respect to price? A) Green vegetables B) Green beans C) Vegetables D) Food

D) Food

13) Which of the following would cause an increase in quantity supplied of wheat? A) New, better technology for farming is introduced. B) The price firms pay for liability insurance falls. C) The price of fertilizer farmers' use in their fields decreases. D) The price farmers receive for their wheat rises.

D) The price farmers receive for their wheat rises.

Refer to the figure above. At a price of $3, the market will experience ________ in the amount of ________ units. A) equilibrium; 4 units B) excess supply; 3 units C) excess supply; 7 units D) excess demand; 5 units

D) excess demand; 5 units

20) Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the 1,000th unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its variable cost, the firm should: A) decrease production to lower losses. B) increase price to increase profits. C) increase production to increase profits. D) leave production unchanged.

D) leave production unchanged.

18) Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The amount of oil still in the earth is finite. Given this information, the supply of gasoline is ________. A) greater than the quantity demanded B) relatively elastic C) unit elastic D) relatively inelastic

D) relatively inelastic

1. A consumer's maximum willingness to pay for one widget is $5. If the price of the widget is $3, she will A. not buy the widget. B. buy the widget and earn $5 of consumer surplus. C. buy the widget and earn $3 of consumer surplus. D. buy the widget and earn $2 of consumer surplus.

D. buy the widget and earn $2 of consumer surplus.

7) Point U is: A) unattainable. B) inefficient. C) attainable. D) efficient.

A) unattainable.

12. Suppose the market supply curve is given by P = 10 + 2QS. How much producer surplus will be generated if the market price is 30? A. $100 B. $150 C. $200 D. $300

A. $100

11. Which industry is most likely characterized as perfectly competitive? A. Apple production B. Electricity transmission C. Diamond production D. Water and sewage services

A. Apple production

4. Economic profit is A. the difference between a firm's total revenue and the total of its explicit and implicit costs. B. the difference between a firm's total revenue and its explicit costs. C. the difference between a firm's total revenue and its implicit costs. D. the part of the payment for a factor of production that exceeds the owner's reservation price.

A. the difference between a firm's total revenue and the total of its explicit and implicit costs.

19) Taylor's marginal utility from watching movies and from eating out (in utils) is shown below. Taylor spends exactly $100 every month on these two forms of entertainment, and the price of each movie is $10 and the price of each dinner is $20. Taylor's optimal combination of movies and eating out is: A) 3 movies and 3 dinners. B) 2 movies and 4 dinners. C) 3 movies and 4 dinners. D) 4 movies and 3 dinners.

B) 2 movies and 4 dinners.

19) Why does your grocery store sell day-old bakery goods but not day-old canned goods? A) Canned goods are priced at the market equilibrium. B) An excess supply of bakery goods will quickly spoil, but excess canned goods will not. C) Demand for canned goods is easier to predict. D) There is excess demand for canned goods.

B) An excess supply of bakery goods will quickly spoil, but excess canned goods will not.

9) You are trying to decide whether to purchase the latest Harry Potter book online or borrow it from the library. There is no charge for borrowing a book from the library, but going to the library takes more time than ordering a book online. Regardless of how you get the book, its benefit to you is the same. If the cost of buying the book online is $13, then you should: A) buy the book online because it takes less time. B) borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13. C) borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is greater than $13. D) borrow the book from the library because you can get it from the library for free.

B) borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13.

2) In general, individuals and nations should specialize in producing those goods for which they have a(n): A) absolute advantage. B) comparative advantage. C) absolute advantage and a comparative advantage. D) absolutely comparative advantage.

B) comparative advantage.

15) In a competitive labor market, if a firm pays a worker less than that worker's value marginal product, then in the long run: A) the firm will earn positive economic profits. B) competing firms will hire the workers away. C) the worker will have no incentive to work hard. D) the supply of workers will fall.

B) competing firms will hire the workers away.

18) Refer to the table above. Based on their comparative advantages, Pat should specialize in ________, and Corey should specialize in ________. A) neither making pizza nor delivering pizza; both making pizza and delivering pizza B) delivering pizza; making pizza C) making pizza; delivering pizza D) both making pizza and delivering pizza; neither making pizza nor delivering pizza

B) delivering pizza; making pizza

23) It is well documented that persons with a college degree earn more over their lifetime than persons with only a high school diploma. According to human capital theory, this earnings differential is due to A) the fact that college graduates have a fancier diploma. B) the fact that college graduates are more productive. C) the fact that college graduates are more athletic. D) the fact that college graduates tend to come from wealthier families.

B) the fact that college graduates are more productive.

22. A profit-maximizing monopoly charging one price would sell: A. 1 B. 2 C. 3 D. 4

B. 2

10. If the monopolists maximizes his/her profit, s/he will charge: A. 6 B. 33 C. 39 D. 45

B. 33

16. Which of the following is not an example of the hurdle method of price discrimination? A. A mail-in rebate for a laser printer B. A going-out-of-business sale C. A discount for advance purchase ballgame tickets D. An "early bird" dining discount

B. A going-out-of-business sale

13. Which of the following scenarios best illustrates the allocative function of price? A. Ebay is used to auction off a rare baseball card. B. A rise in the wages of computer programmers causes more people to major in computer science. C. Ticket scalpers sell tickets for a price above face value on the day of the concert. D. Organs are allocated by the National Organ Donation Network on the basis of need, in- stead of by a market.

B. A rise in the wages of computer programmers causes more people to major in computer science.

15. The administration at What'sAMatterU rejected charging a price for parking spaces on the grounds it would favor the wealthier student. Which of the following types of students does the first come, first served allocation favor? A. Students with midday classes B. Students with 8 am classes C. Students who could walk to class D. Students with 3 pm classes

B. Students with 8 am classes

8. Long run equilibrium occurs when a firm's ___ profit is equal to zero. A. normal B. economic C. accounting D. monopoly

B. economic

5. Deadweight loss is the A. difference between costs and revenues when costs exceed revenues. B. reduction in total surplus that results from a government intrusion into a market. C. decline in government tax revenues that occurs when taxes are lowered. D. cost of hiring accountants to calculate costs accurately.

B. reduction in total surplus that results from a government intrusion into a market.

19. Economists have measured the elasticity of supply and demand for widgets. The supple elasticity is estimated to be 2.1, while the demand elasticity is estimated to be 1.5. If a tax were imposed on the sale of widgets, we would expect A. Sellers to bear all of the economic burden of the tax. B. Buyers to bear all of the economic burden of the tax. C. Buyers to bear more of the economic burden of the tax. D. Sellers to bear more of the economic burden of the tax.

C. Buyers to bear more of the economic burden of the tax.

17. A friend points out an article in the newspaper describing how cost decreases are increasing profits in the market for eggs. He says this sounds like a great investment opportunity. What does economic theory predict will likely happen to the egg market? A. Egg producers will continue to make large economic profits. B. Consumer demand will fall, causing egg producers' economic profits to fall to zero. C. More firms will enter egg production until the price falls enough for each firm's economic profits to reach zero. D. More firms will enter egg production, but those firms will be able to maintain positive economic profits forever.

C. More firms will enter egg production until the price falls enough for each firm's economic profits to reach zero.

20. In the 1970s, the Federal Energy Commission imposed a maximum price (price ceiling) on sales by operators of natural gas wells to distributors of natural gas. If this policy had any effect on the market for natural gas, we would have expected it to A. allow the market for natural gas to reach a stable equilibrium. B. cause a surplus of natural gas, because the price is below the equilibrium price. C. cause a shortage of natural gas, because the price is below the equilibrium price. D. allow the market for natural gas to reach a stable equilibrium price, but the equilibrium quantity would fluctuate a lot.

C. cause a shortage of natural gas, because the price is below the equilibrium price.

14. Assume that the supply and demand curves for cars are elastic. If the government imposed a $500/car tax on the seller of each car, then the A. price that consumers pay would increase by more than $500. B. price that consumers pay would increase by exactly $500. C. price that consumers pay would increase by less than $500. D. price that consumers pay would not change at all.

C. price that consumers pay would increase by less than $500.