Practice Questions Exam 2

Frank has a weekly income of $100 to spend on beer and donuts. The price of a beer is $5 and that of a donut is $2...If Frank increases his budget line...

a. shifts to the right

Deadweight loss as a result of the 200-unit quota in the flashlight market will be equal to...

b. $1,500

The market demand for Widgets is given by P = -2Q^d = 40. The market supply for Widgets is given by P = 1/2 Q^s = 10. The equilibrium price of Widgets is ______, and the equilibrium quantity of Widgets is ______.

c. $16, 12

As a result of a 200-unit quota in the flashlight market, what would the new consumer surplus be?

a. $2,000

Tom has his own business of selling hotdogs at tailgating parties for the Auburn football games. Alternatively, he could also work as a chef in a fancy French restaurant in Atlanta making $60,000 a year. If he makes revenues of $10,000 selling hot dogs, and incurs expenses of $500, what is his economic profit?

a. - $50,500

If the government sets a price ceiling of $10 in the flashlight market, which of the following would you expect to see?

a. A shortage of 300 flashlights.

Using the table below, when do diminishing returns set in?

a. After the 2nd worker is hired.

In an indifference curve/budget line diagram, generally when the price of a good increases, the consumer purchases _____ of the good and moves to a ______ indifference curve.

a. less; lower

If the demand elasticity for good X is 1.33, and the supply elasticity for X is 0.42, who will pay a greater share of a tax imposed in the market?

a. producers

In the market for the basketball game tickets graphed above, what is the deadweight loss resulting from a $2 excise tax imposed in the market?

b. $10

Given market demand and supply in the market for Widgets above, in equilibrium the consumer surplus is ________ and the producer surplus is ______.

b. $144, $36

Philip can consume Pizza or Beer. The table below gives combinations of pizzas and beers that are on his budget line. If the price of a pizza is $8, then his income is ______, and the price of a beer is _______.

b. $40, $8

Maggie has a weekly income of $50 to spend on books and CDs. If the price of a book is $10 and that of a CD is $5, what is Maggie's budget constraint? Let B = number of books and C = number of Cds.

b. 10B + 5C = 50

Ann has a weekly income of $60 to spend on magazines and lattes. The price of a magazine is $12 and the price of a latte is $6. If Ann maximizes her utility, she consumes...

b. 2 magazines, 6 lattes

The decrease in marginal utility as the quantity of the good consumed increases is called _________.

b. The principle of decreasing marginal utility

If the marginal product curve is _______ the average product curve, then the average product curve is ______.

b. above; rising

When the price of a good increases, the marginal utility per dollar....

b. decreases and the quantity demanded decreases

Chris has $80 a week that he spends on widgets and gadgets. A widget costs $5 and a gadget costs $8. One week, Chris spent all of his income and found that the marginal utility from the last widget was 30 and the marginal utility from the last gadget was 24. Chris knows that he is not maximizing total utility. To increase his utility, what should Chris do?

c. Chris should buy more widgets and fewer gadgets.

When the average variable cost is falling, which of the following is always true?

c. Marginal cost is below average variable cost.

The current equilibrium price in the market for handheld GDP units is $229. The government is considering placing a tax of $2 per unit in the market. If the price elasticity of demand is 3.6, and the price elasticity of supply is 1.8, which of the following might you expect to see as a result of the $2 tax?

c. The price consumers pay rises to $229.67

The demand curve for wool (in pounds) is Qd = 300 - 2P, and the supply curve of wool (in pounds) is given as Qs = P - 30. What impact would a price floor of $79.50 have in the same market for the wool above?

c. There would be no impact, as the price floor is ineffective

If instead of a price ceiling, the government institutes a quota of 200 in the same market, what price will be charged in the market?

d. $40

Using the same cost schedule, what is the marginal cost of the third sprocket?

d. 10

Using the cost schedule above, what is the fixed cost of producing two sprockets?

d. 9

Which short-run curve is NOT U-shaped?

d. Average fixed cost

If a company triples its plant size and its average cost decreases, then the firm is experiencing...

d. economies of scale

Which of the following statements about an individual's indifference curves on ordinary goods is true?

d. they cannot intersect