microeconomics top hat

Which of the following is a disadvantage of having a dictator?

Decisions made by the dictator do not take into account the preferences of many people.

A reminder: What is the rule for profit maximization for a monopolist?

Marginal Revenue = Marginal Cost

In the long run in a perfectly competitive market, economic profit will tend to converge toward, and stay around,

zero economic profit

What is the missing Average Total Cost number?

400

What will the players do in the Prisoner's Dilemma game, assuming they each do what is in their individual self-interest?

Both players will play "Fink".

People running IT (information technology) departments have a persistent problem: many users do not use good security procedures. They open attachments from strangers, visit risky websites, and generally do things that are bad for their devices. The real problem, though is an incentive problem: When I do something that gets my computer infected with malware, I hurt myself, but I also endanger everyone else using the same network. That is, I only pay some of the costs of my risky behavior; the rest of the costs fall on other users. This is an example of...

a Negative Externality.

you go to the bookstore, or go to an online vendor, and find that they will offer you an academic discount for software. You have to present a faculty or student ID. What kind of price discrimination is this?

third degree

Which of the following is not an example of the Tragedy of the Commons?

Raphael does not enjoy cleaning, so when his friends come over to visit, they find that his bathroom is very unpleasant to use. They stop visiting him.

Which of the following companies is not likely to be able to benefit from significant economies of scale?

Taylor's Tailors, a company that makes unique bespoke (i.e., custom) suits for men.

A $1 per pound tax is imposed on cucumbers. The own-price elasticity of demand for cucumbers is 1.5, and the elasticity of supply for cucumbers is 0.7. Which of the following is correct?

The burden of the tax will fall mostly on producers.

suppose your company has $1 million in explicit costs, and could rent out its buildings to earn a revenue of $0.5 million. Its equipment could be rented out for another $0.25 million. What is your economic cost?

$1.75 million

your company produces 5000 doodads at a total accounting cost of $2 million. It sells them for $600 each. If you changed your business to produce thingies instead, you would earn a $5 million accounting profit. What is your company's economic profit?

-$4 million

The price of internet access rises from $50 per month to $70 per month. The quantity of streaming service subscriptions falls from 200 million to 175 million. What is the Arc Cross-Price Elasticity of Demand?

-0.4

Your height is 60 inches, but you lose your shins in a tragic gardening accident. As a result, your new height is 48 inches. The percent change in your height is...

-20%

If you are willing to pay $40 for Top Hat access, but a guy in an alley sells you a black market access code for $20, your consumer surplus is...

20

How much higher would you guess the average person's income is today than it was in 1950, in real (i.e., inflation-adjusted) terms?

270% higher

Suppose you have a box that has a height of 40 inches and a width of 10 inches. What is its area?

400 square inches

in your spare time you drive for Uber. You pick up a passenger and take her to Madison Social, for which you are paid $15. You would have been willing to drive her there for $9. Your producer surplus is...

6

The graph below depicts a tax placed on a good or service. Which of the answers below is correct?

A is tax revenue, B is consumer surplus, C is producer surplus, and E is deadweight loss.

If the program had been altered twenty years ago to create actual savings to pay for future retirees, or if benefits had been altered, this problem could have been avoided, or at least reduced. Why didn't politicians act to take care of this problem earlier?

Politicians have no incentive to address problems that will not appear until they have left office.

Suppose the equilibrium price of toilets is $250. The government imposes a $600 minimum price for each toilet. Which of the following is not likely to occur?

Toilet manufacturers produce the lowest-quality toilets possible, while also complying with regulations.

What is the pattern in voting outcomes for the tables we just saw?

When voters pay in proportion to benefits received, efficient policy is likely to pass, and inefficient policy is unlikely to pass.

In equilibrium...

all of the above: -total surplus is maximized -quantity supplied equals quantity demanded -supply intersects demand

The U.S. government provides targeted assistance to particular industries through programs like the Export-Import Bank (which gives low-interest loans to U.S. business to encourage exports). Suppose a politician proposes expanding the program to domestic production as well, with the federal government backing crowdfunded projects and making loans to businesses. Which of the following objections might an economist make?

all of the above: -Consumers and private investors are better judges of which businesses worth investing in. -Businesses are likely to use lobbying and political contributions to obtain loans, resulting in wasted resources due to rent seeking. -If these investments turn out to be unprofitable, taxpayers will have to pay for the loss, rather than the officials that made the investment. This does not encourage wise investing.

Equilibrium is efficient because...

all of the above: -total surplus is maximized -marginal benefit equals marginal cost -every unit that is produced has a benefit to consumers > or = to the cost of its production

Of the following goods, which is likely to have the most elastic demand?

candy

Suppose the market for potato chips is in equilibrium, and then two things happen at the same time: The price of potatoes (which are used to make potato chips ) goes up, and a big sporting and social event occurs. Eating lots of potato chips is traditional at this big sporting event. Which of the following is correct?

price rises, quantity is indeterminate

If the price of chicken feed (which is fed to chickens) goes up, which of the following will happen in the market for chicken sandwiches?

supply will shift to the left, and price will rise

Consumer Surplus is...

the difference between what consumers are willing to pay and what they actually pay

Suppose the market for onions is perfectly competitive, and it's an increasing cost industry. Also suppose that right now, firms are making positive economic profits. When this market reaches a long run equilibrium, will the price be higher or lower than it is right now?

the price will be lower

A new program to teach computer science more effectively graduates its first class of computer scientists, resulting in a significant increase in the number of programmers and software engineers available. Which of the following will occur?

the supply of software will shift to the right

Which of the following is correct?

A monopoly that does not have enough revenue to pay its variable costs will shut down immediately.

Your income rises by 10%, and the quantity of raisins that you purchase falls by 5%. Which of the following is correct?

The income elasticity of demand for raisins is -0.5, and raisins are an inferior good.

Which of the following is the economists' view of government?

Governments are made up of rationally self-interested individuals, operating within a system of rules. Their actions are determined by their preferences and the incentives created by the system of rules.

Which of the following correctly summarizes positive and negative externalities?

If there is a negative externality, people do too much of a bad thing. If there is a positive externality, people do too little of a good thing.

Which of the following best summarizes chapters 5 and 6, on market failure and public choice economics?

Markets often work well, but fail in predictable ways. Government intervention might fix these problems, but government is itself prone to failure. As a result, efficiency may not be attainable.

The efficient amount of output is where the marginal cost to society is equal to the marginal benefit to society. Is this where the monopolist produces?

No, the efficient output is where MC = D, because Demand represents the marginal benefits to society.

Which of these jobs is likely to pay the highest salary?

Offshore oil platform engineer, which requires a bachelor's degree and a master's degree, as well as working offshore for months at a time, in a dangerous environment, producing extremely valuable oil

Suppose the government imposes a maximum annual tuition on bachelor's degree-granting institutions of $2,000 per year. Which of the following is not likely to occur?

Universities will compete for students more intensely, resulting in more and larger scholarships.

Which of the following is an example of moral hazard?

When businesses know that the government will bail them out if they suffer large losses, businesses start taking bigger risks.

Economic analysis suggests that bureaucrats and public-sector managers have a strong incentive to

expand their budgets to sizes beyond what would be considered economically efficient, to increase their power and prestige.

Consider the supply curve for sour cream. If the price of sour cream falls, then...

the quantity supplied will fall

Your company produces 5000 doodads at a total cost of $2 million. It sells them for $600 each. What is your company's profit?

$1 million

You are repainting your house, and currently can paint one room each day. You call a friend in , and now you can paint 1.5 rooms per day. The marginal product of your friend is...

0.5 rooms per day.

Suppose I buy a nice dinner for $15. I was willing to pay $25 for it, and the restaurant would have been willing to sell it for as little as $11. What is the total gain to both sides?

14

If the opportunity cost of watching one episode of your favorite show on Netflix is the $5 you would have earned from working for half an hour, then the opportunity cost of working for an hour is... watching ______ episodes of your favorite show on Netflix.

2

You increase production at your ice cream factory by 50 gallons per day. This requires you to pay an additional $100 in costs for cream, natural and artificial flavoring, sugar, guar gum, and tapioca starch. What is the marginal cost of this increase in production?

2

Which of the following statements is correct?

All of the above: -in an increasing cost industry, the long run supply curve slopes upward -In a constant cost industry, the long run supply curve is horizontal. -In a decreasing cost industry, the long run supply curve slopes downward.

You are operating a house painting business (because you got so good at it from painting your own house). You currently have yourself and two other employees, and you can paint a total of 2 rooms per day. Adding a fourth worker will allow you to paint an additional 0.5 rooms per day. What does adding the fourth worker do to your average product?

Average product falls.

What is the economically rational thing to do? In case it matters to you, you've already paid for your movie ticket, and can't get your money back. You can't scalp your tickets.

Go to the musical performance.

Which of the following goods (or services) is likely to have inelastic supply?

Higher education, which requires instructors with a PhD (which usually take 4 to 6 years to complete)

ABC company has Average Fixed Costs of $12, Average Variable Costs of $20, Total Revenue of $4,000, and produces 100 units of output. Which of the following is correct?

It is earning positive economic profit.

The market for cheddar cheese in equilibrium, and then two things happen at the same time. Consumers decide that Wensleydale cheese is much tastier, and many switch away from cheddar cheese. Also, the price of milk rises, making cheese production more costly. Which of the following is correct?

The change in the equilibrium price of cheddar cheese is indeterminate, the equilibrium quantity of cheddar cheese falls.

If the surgeon general announces that wearing shoes is bad for your posture, which of the following will occur?

demand for shoes will shift to the left

Suppose the market for coffee is in equilibrium. An FDA report is released documenting a variety of significant health benefits of drinking coffee every day. What happens in the market for coffee (the drink—not the bean)?

demand shifts to the right, price rises, quantity rises

Suppose the market for smartphones is in equilibrium. A new battery technology is invented which makes phones last a week without needing to be recharged. What happens in the market for smartphones?

demand shifts to the right, prices rise, quantity rises

Which one of these functions is the most inelastic?

graph A (most vertical)

Which of the following graphs depicts a monopolistically competitive firm earning zero profit?

graph b

A country with a comparative advantage in producing a good...

has the lowest opportunity cost of production

What kind of economic profit is the firm on the graph below earning?

negative

What is the title of the official in charge of making sure markets reach equilibrium?

none of the above

the value of the best thing you give up to get something is

opportunity cost

Suppose the price of tomato sauce is $4 per jar, but then rises to $7 per jar. The Law of Demand states that...

quantity demanded will fall

Here's a question straight off of an old exam: In a decreasing cost industry, as firms exit the industry and industry output decreases, costs will...

rise

Producer Surplus is...

the area above the supply curve and below the price

A tornado destroys several carpet factories in North Georgia. Which of the following occurs?

the carpet supply curve shifts to the left

Suppose you are able to signal to a potential employer that you are very productive. Which of the following is correct?

all of the above: -you are more likely to be hired -you are likely to be paid more -you are likely to be able to negotiate other employment terms to your benefit

Which of the following would you prefer? (This is a survey question with no right or wrong answer.)

any answer: -Really cheap hardware and software for phones and computers, but very little improvement over time. -Really expensive hardware and software for phones and computers, but rapid improvement over time. -something in between

A monopoly produces at MC=MR, resulting in a price of $50, quantity of 1,000 units, ATC of $30, and AVC of $20. What should this firm do?

Produce in the short run and the long run.

Qualcomm and Crucial are two companies making computing components: memory and processors. According to their production possibilities frontiers above, which of the following is correct?

Qualcomm has a comparative advantage in processors, and crucial has a comparative advantage in memory

Consider broadcast radio and television (broadcast radio and television are transmitted over radio waves through the air, like to your car radio, or to a television with an antenna, which I'm sure none of you use). What kind of good are these?

A public good, because they are nonrivalrous and nonexcludeable.

Suppose the equilibrium interest rate in the mortgage market is 6%. The government imposes a usury law, which declares that interest rates above 2% are illegal. What happens?

A shortage of mortgage loans occurs.

Which of the following is correct?

All of the above: -average fixed cost declines as output rises -Marginal Cost falls as Marginal Product initially rises, but when diminishing returns set in, Marginal Cost rises as Marginal Product falls. -Marginal Cost passes through the minimum of AVC and ATC. -Average Total Cost is the sum of Average Variable Cost and Average Fixed Cost.

Which of these answers correctly ranks the markets from most competitive to least competitive?

Common wheat, fast food, cable internet service

Which of the following is an economically reasonable argument for health inspections of restaurants?

Customers cannot easily get information about which restaurants are safe, and restaurants have little incentive to tell customers about problems.

Here's a typical exam question: Suppose the market for wheat is in equilibrium, with firms earning zero economic profit. Scientists discover that eating lots of carbohydrates is actually good for you, and everyone begins eating a lot more bread. Which of the following will occur?

Demand for wheat rises, driving the price up, and causing firms to enjoy positive economic profits

The shutdown rule implies that only the Marginal Cost Curve above Average Variable Costs is relevant. This section of the Marginal Cost Curve is upward sloping, and the Equimarginal Principle means that as price rises, the quantity of output a firm produces will rise.

The Law of Supply

Suppose it is 2,500 B.C.E. and the market for wheat in Egypt is in equilibrium. Two things then happen at the same time. First, the Nile fails to flood that year, so it does not deliver vital nutrients to the land around the river. Second, the Pharaoh imposes a tax of one senyu per bushel on wheat, to be paid by consumers. Which of the following is correct?

The price is indeterminate and quantity falls.

suppose the administration of FSU decides to fire all advisors and administrators, leaving only faculty, cleaning staff, and support staff, and by doing so it manages to cut costs significantly. The price of one year's tuition at FSU falls from $6,500 to $4,000. Which of the following will occur, ceteris paribus?

The quantity of students who choose to attend FSU will rise

For every hour you spend studying for your economics exam, you will improve your grade by 3 points. For every hour you spend studying for your Physics exam, you will improve your grade by 4 points. For every hour your friend Albert spends studying for his economics exam, his grade will improve by 8 points. For every hour he spends studying for his physics exam, his grade will improve by 16 points.Which of the following is correct?

Your opportunity cost of studying enough to improve your grade on your economics exam by 1 point is 1 1/3 points on your physics exam, and you have a comparative advantage in economics.

Given the values in the table below, suppose Bubba proposes the following: First they will vote on cruisin' versus shootin' stuff, and then they will vote on the winner of the first vote versus bowlin'. What will the outcome of this vote be?

bowlin'

The opportunity cost for you to prepare a decent meal is one hour of work, which would earn you $10. The opportunity cost for Chef Enzo to prepare a decent meal is five minutes of work, which would earn him $2. Which of the following terms of trade would benefit you and Chef Enzo?

chef enzo prepares a meal for you for $8

If a person's income goes up, and that person buys more chicken sandwiches, then we can conclude that for this person...

chicken sandwiches are a normal good

Which of the following goods best fits the assumptions underlying perfect competition?

common wheat