ECN 212 FINAL

A monopolist can sell 300 units of output for $29.00 per unit. Alternatively, it can sell 301 units of output for $28.25 per unit. The marginal revenue of the 301st unit of output is:

-196.75

Suppose that demand is given by Q = 119 - 2P while supply is given by Q = 1(P-T) - 17. Where T is a commodity tax placed on sellers. If the government set T = 3.61, how much revenue would the government collect?

93.60

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

at the market price

When the government taxes an activity, resources such as labor, machines, and bank lending will tend to gravitate _________ the activity that is taxed and will tend to gravitate ________ activity that is not taxed.

away from toward

Economic theory suggests that college graduates receive higher wages than those with only a high school education because:

college graduates are more productive

The economic inefficiency of a monopolist can be measured by the:

deadweight loss involved relative to a competitive firm

As more workers are hired, the marginal product of labor typically:

decreases

which of the following goods is likely to have the most inelastic demand curve?

demand for transportation

If the government imposes a commodity tax on the BUYERS of a good, which of the following describes the change to the market?

demand shifts DOWN by the amount of the tax

A sales manager at a car dealership revealed that he considers how much the customer appears to know about the car when he's negotiating a price. Ignorant people tend to pay a premium on their car. Price discrimination explains this "ignorance premium" since people who:

don't bother to research are probably less sensitive to price.

if you are low on gas while evacuating for a hurricane, what gas prices do you hope to see?

high gas prices

A firm is willing to hire a worker when the marginal product of labor is:

greater than the wage

Economic profit differs from accounting profits because of its inclusion of:

implicit costs

Human capital labor market issues:

include the skills, knowledge, and experience that people obtain

What does it mean that elasticity equals escape?

it is easy for market participants to escape another market if they have elastic demand or supply

the supply of a good is more elastic when...

it is easy to produce more at the same cost

along a supply curve, if the price of oil falls, what will happen to the quantity of oil supplied?

it will decrease

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

opportunity cost

economics summarized in 4 words

people respond to incentives

Increasing prices act as a signal to:

suppliers to increase the quantity supplied in those markets.

Which of the following goods is likely to have the most elastic supply curve?

supply of bananas in tempe, az

Which of the following goods is likely to have the most elastic supply curve?

supply of maruchan ramen noodles

If the government imposes a commodity tax on the sellers of a good, which of the following describes the change to the market?

supply shifts UP by the amount of the tax

which of the following is an example of a price floor?

the minimum wage

the demand for a good is more elastic when...

there are many substitutes for that good

Some workers have lower wages than others because:

there are variations in the difficulty of the work

what happens when the price in a market is BELOW the equilibrium price?

there is a shortage of the good and buyers must compete with each other in order to get the good, often resulting in a bidding up of the price paid?

What do economists consider to be "the great economic problem"?

using limited resources to satisfy as many of our unlimited wants as possible

What is comparative advantage?

when an individual, firm, or country can produce something AT A LOWER OPPORTUNITY COST than other individuals, firms, or countries.

During a crisis such as Hurricane Katrina, governments often make it illegal to raise the price of emergency items like flashlights and bottled water. In practice, this means that these items get sold on a first-come, first-served basis. If a person has a flashlight that she values at $5, but its price on the black market is $40, what gains from trade are lost if the government shuts down the black market?

$35

If a firm has revenues of $100, explicit costs of $50, and implicit costs of $50, then its accounting profit is:

$50

Suppose that demand is given by the equation Q = 117 - 2P and the price increases from $13 to $25. Use the midpoint formula to estimate the elasticity of demand with this change.

-0.48

Suppose that the Private Cost of producing a good is given by the equation Q = 4.4P - 23.7, but the Social Cost of producing the good is given by Q = 4.4P - 26.9. The government would like to correct this externality by imposing either a tax or subsidy for each unit produced. How much should the government tax/subsidize the production of this good to correct the externality?

-0.73

Suppose that there were markets for three related goods. For Good 1, Demand is given by Q1 = 163 - 4P1 - 2P2, and Supply is given by Q1 = 2P1 - 19. Note that the subscript 1 indicates Good 1, and the subscript 2 indicates Good 2. For Good 2, Demand is given by Q2 = 210 - 4P2 - 3P1 + 2P3, and Supply is given by Q2 = 3P2 - 24. Note that the subscript 1 indicates Good 1, the subscript 2 indicates Good 2, and the subscript 3 indicates Good 3. For Good 3, Demand is given by Q3 = 271 - 3P3 + 2P2, and Supply is given by Q3 = 2P3 - 23. Note that the subscript 1 indicates Good 1, the subscript 2 indicates Good 2, and the subscript 3 indicates Good 3. Given this information, what would be the equilibrium price for Good 1 (P1)?

13.63

Suppose that demand for labor is given by Q = 13 - 1(W-S) while supply of labor is given by Q = 1W - 3. Where W is the hourly wage paid to workers and S is a subsidy given to employers. How much of a subsidy would the government need to give employers to raise the hourly wage paid to workers to $15?

14.00

Suppose that demand is given by Q = 109 - 2P while supply is given by Q = 1(P-T) - 19. Where T is a commodity tax placed on sellers. If the government set T = 6.78, what will be the size of the deadweight loss?

15.32

The table below show the hours of work necessary to produce one unit of each good for each country. Country Cloth Wine England 171 55 Portugal 153 69 Identify which country has an absolute advantage in the production of cloth by entering in their value from the table above for the number of hours needed to make 1 unit of cloth.

153

in which year did president nixon declare a freeze on all price and wage increases?

1971

Suppose that demand for a good is given by Q = 124 - 1P, while supply for the good is given by Q = 1P - 5. If a price ceiling of $14.62 is imposed, what will be the area of the deadweight loss?

2,488.01

Suppose a monopolist faces the demand curve P = 198 - 3Q. The monopolist's marginal costs are a constant $28 and they have fixed costs equal to $142. Given this information, what are the maximum profits this firm can earn?

2266.33

Suppose a monopolist faces the demand curve P = 100 - 3Q. The monopolist's marginal costs are a constant $21 and they have fixed costs equal to $87. Given this information, if the firm maximizes their profits, what would be size of the deadweight loss in this market?

260.04

Suppose that the elasticity of supply of t-shirts is 1.6. By what percentage would the quantity supplied increase if there was a 18.01% increase in the price?

28.82

Suppose that demand is given by Q = 134 - 2P while supply is given by Q = 1(P-T) - 12. Where T is a commodity tax placed on sellers. How much much of the tax will buyers have to pay as a percentage of the full tax?

33.33

When a price ceiling is imposed, long lines are likely to follow. The value of the time wasted waiting in these lines should be equal to the difference between the market equilibrium price and the imposed price ceiling. Suppose that demand for a good is given by Q = 117 - 1P, while supply for the good is given by Q = 1P - 28. The average person values their time at $14.17/hour. If a price ceiling of $12.31 is imposed, how many hours will the average person have to wait in line?

4.25

Suppose a tariff of $1300 per unit is place on cars. As a result, domestic production of cars increases from 54,000 cars per year to 81,000 cars per year, while domestic demand for cars drops from 142,000 cars per year to 113,000 cars per year. How much revenue will the government collect from this tariff each year?

41,600,000

Suppose that demand is given by Q = 127 - 2P. After a price change, you determine that the elasticity of demand is -1 (unit elastic) using the midpoint formula. The initial price was $19.77. What is the new price?

43.73

Who gets the subsidy does not depend on who writes the check to the government.

TRUE

Suppose that there were markets for two related goods. For Good 1, Demand is given by Q1 = 190 - 2P1 - 2P2, and Supply is given by Q1 = 2P1 - 14. Note that the subscript 1 indicates Good 1, and the subscript 2 indicates Good 2. For Good 2, Demand is given by Q2 = 266 - 3P2 - 2P1, and Supply is given by Q2 = 2P2 - 20. Note that the subscript 1 indicates Good 1, and the subscript 2 indicates Good 2. Given this information, what would be the equilibrium price for Good 2 (P2)?

46.00

Total Costs for a firm are given by: TC = 3Q2 + 10Q. Marginal Costs for that same firm are given by: MC = 2*3Q + 10. If this firm is operating in a perfectly competitive environment and is a price-taker, what would their total profits be if the market price was $34.41?

49.65

Clark starts a coffee shop and begins hiring employees. The first employee's marginal product of labor (MPL) is $128 an hour and the MPL for each employee beyond the first adds half of the previous employee's ($64 for the second, $32 for the third, etc.). If the market wage for employees is $7 an hour, how many employees should Clark hire?

5

Suppose demand is given by the equation Q = 124 - 1P and supply is given by the equation Q = 3P - 19. What would be the total gains from trade at equilibrium (total consumer surplus + total producer surplus)?

5,192.04

The unemployment rate is the percentage of workers who are seeking a job at the prevailing wage, but who are unable to get one. When a minimum wage is imposed, it creates some unemployment among minimum wage workers. Suppose that the demand for labor is given by Q = 51 - 1W, where 'W' is the hourly wage rate, and the supply of labor is given by Q = 3W - 5. Imagine that a minimum wage of $22.19/hour is imposed by law. What will be the unemployment rate for workers in this market?

53.21

A monopolist is seeking to price discriminate by segregating the market. The demand in each market is given as follows:

5468.38

Suppose a firm in a perfectly competitive market has total costs equal to 5Q2 + 5Q + 15. If this firm is earning zero economic profits, and is producing 10 units of the good, what must the market price be?

56.50

Suppose demand is given by the equation Q = 106 - P and supply is given by the equation Q = P - 17. What would be the size of the surplus if the price were $90.71?

58.42

Suppose there are only two countries in the world, Country A and Country B. The following table contains information on each country's demand and supply of some good. Country A Country B Demand Q = 136 - 2P Q = 115 - 2P Supply Q = 3P - 27 Q = 2P - 27 If there is free trade between these two countries, what would be the quantity of Net Exports in Country A?

6.44

Suppose demand is given by the equation Q = 102 - 1P and supply is given by the equation Q = 2P - 22. What would be the equilibrium quantity for this market?

60.67

A monopolist is seeking to price discriminate by segregating the market. The demand in each market is given as follows: Market A: P = 169 - 2Q Market B: P = 170 - 3Q The monopolist faces a marginal cost of $15 and has no fixed costs. Given this information, what is the difference between the total quantity the price-discriminating monopolist will supply across both markets and the total quantity that would be supplied in a perfectly competitive market with the same marginal costs for firms at equilibrium?

64.33

Suppose a monopolist faces the demand curve P = 117 - 2Q. The monopolist's marginal costs are a constant $20 and they have fixed costs equal to $56. Given this information, what will the profit-maximizing price be for this monopolist?

68.50

Suppose that a firm in a perfectly competitive industry has the following marginal cost curve: MC = 4Q + 18. If the market price for the good they produce is $47.7, how many units of this good will the firm produce?

7.43

Total Costs for a firm are given by: TC = 1Q2 + 14.1. Marginal Costs for that same firm are given by: MC = 2*1Q. In the long run, this firm will exit the market if the price falls below what value?

7.51

Suppose that the Private Cost of producing a good is given by the equation Q = 4P - 6, but the Social Cost of producing the good is given by Q = 4P - 14. Meanwhile, the demand for this good is given by Q = 130 - 2P. In order to correct for the externality, the government has imposed a tax of $12.37 per unit on producers, but the government did so without bothering to check whether or not the tax was equal to the size of the externality. Given all of this information, what is the area of deadweight loss in this market after the tax has been imposed?

71.69

Suppose that the elasticity of demand for peanuts is -1.3. Initially, the quantity demanded is 87. Based on the elasticity, what would the quantity demanded be after a 8.89% price increase?

76.95

A monopolist is seeking to price discriminate by segregating the market. The demand in each market is given as follows:

80.00

The table below show the hours of work necessary to produce one unit of each good for each country. Country Cloth Wine England 118 108 Portugal 99 96 Identify which country has an comparative advantage in the production of cloth by entering in their value from the table above for the number of hours needed to make 1 unit of cloth.

99

when the price of a good increases, the quantity demanded

DECREASES

why does economic growth require job destruction?

Economic growth comes from creating and producing goods that use resources more productively, causing job loss in industries that use outdated technology.

buyers compete with sellers

FALSE

When a monopolist's demand curve is inelastic, raising the price:

INCREASES total revenue and DECREASES total cost

Circa 1200 BCE, a decreasing supply of tin due to wars and the breakdown of trade led to a drastic increase in the price of bronze in the Middle East and Greece (tin being necessary for its production). It is around this time that blacksmiths developed iron- and steel-making techniques (as substitutes for bronze). What does the increasing price of bronze signal?

It tells people that bronze is getting harder to find and its higher price will signal consumers to conserve it more or seek substitutes.

In 1938, Congress set the first minimum wage at $0.25 per hour. While this was a modest price floor for the country, it was a very large increase for what US territory which was not exempt from the law?

PUERTO RICO

Which of the following best describes a competitive industry?

Its firms sell similar products and have little control over their prices; there are many buyers and sellers and each is relatively small compared with the overall market.

Profit maximization occurs when:

MR=MC

Because of pressure from Western countries, garment producers in Bangladesh quit employing 30,000 to 50,000 child workers. What happened to these children?

Many children went to work in jobs with worse conditions and lower pay, many in prostitution.

In the long run, competitive firms want to exit industries in which:

P<AC

Stating that TR = TC is equivalent to stating that:

P=AC

Competitive firms want to produce the quantity such that:

P=MC

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

P=MC

Total cost equals fixed cost ______ variable cost.

PLUS

Which of the following is an example of an external cost?

The annoyance your neighbor experiences from hearing you play your music.

The market price for Good X is $10.75, and every time Good X is consumed it creates an external benefit of $3.00. Therefore, which statement is correct?

The social benefit of Good X is $13.75, a justification for the government to give buyers a $3.00 subsidy.

If students in the United States go online and import the much cheaper Indian version of your textbook instead of buying the American edition, how might this arbitrage nevertheless help the publisher of your textbook?

The students who go to the trouble to do this might have had low willingness-to-pay in the first place, so the arbitrage enables another layer of price discrimination.

Janitors in India might make $1,000 per year, while they could easily earn $20,000 per year in the United States. How is this a forgone gain from trade?

Total surplus would be higher if the Indian janitors could come to the United States to work.

Which is an example of an external benefit?

Your neighbors fix up their homes, which raises property values on the entire street

what is a PRICE CEILING?

a maximum price allowed by law.

What is a PRICE FLOOR?

a minimum price allowed by law

In Chicago's Southside (and other places), auto mechanics (who work outside the formal sector, without a business license, advertising, or even a garage) will do work for gang members without charging them. In exchange, gang members chase away other mechanics who wish to operate in the area. These auto mechanics have monopoly power; what type of source does it come from?

barriers to entry

Imagine that you could travel back in time to another era, bringing with you all the knowledge you have from the modern age. Your wage in the older era might be higher because people with your knowledge were in short supply then. But why might your wage also be lower?

because in bygone eras the economy was less productive overall

The social cost of driving an SUV is equal to:

both the cost of the vehicle's pollution and its operation (gas, etc.).

In an effort to reduce obesity, many governments have imposed or considered placing a tax on sugar-sweetened beverages like soda. If the government is hoping that a small tax can actually discourage soda consumption, it should hope for:

elastic supply and elastic demand

In a free market, if the profit rate in the car industry were higher than in the computer industry, this is a signal that:

entrepreneurs should move resources from the computer industry to the car industry.

Above-normal profits are eliminated by ______, and below-normal profits are eliminated by ______.

entry exit

On Black Fridays, most retail outlets have major storewide sales. Yet, as one of the busiest shopping days in the United States, one would expect prices to increase, not decrease. Price discrimination explains the answer to this question because price:

insensitive shoppers will stay away to avoid the crowds.

In the case of an external cost, marginal private cost:

is less than marginal social cost for all quantity levels

World supply of a good ______ domestic supply.

is more elastic than

There are two major theories of why education leads to higher earnings (though they are not mutually exclusive): signaling and the building of labor market issues. If the signaling theory is dominant, how would the average wage for college graduates change if everyone received a college degree?

it would decrease because it would be more difficult to differentiate workers.

Pfizer sells Atgam in New Zealand for $14 per pill and in Brazil for $8 per pill. This implies that the demand curve in New Zealand must be ________ than in Brazil.

more inelastic

Millions of producers working across the world cooperate to ensure that many more millions of consumers can have the goods and services they desire. These producers do not know each other and are not coordinated by a central agency. Their actions are directed simply by:

self-interest

if the price goes up,

sellers will want to sell more

On June 30, 2011, the price of 5,000 ounces of silver for December 1, 2013, was about $36 an ounce (or $180,000 for all 5,000 ounces). Suppose Chloe believes that the price of an ounce of silver in December 2013 will be $20. Should Chloe agree to buy or sell silver in a futures contract?

she should sell, because $20 is cheaper than $36

A prediction market is a:

speculative market carefully designed so that prices can be interpreted as probabilities and used to make predictions.

A firm with no competitors:

still faces a downward-sloping demand curve

Adults have more money than teenagers and perhaps more inelastic demand for video games than teenage video gamers. Why might it be difficult to price discriminate based on this fact?

teenage gamers could exploit arbitrage opportunities, buy games at low price, and re-sell them to adult gamers

The paper industry and brewery industry each emit 60 tons of particulates into the air. It costs the paper industry $1,000 to remove 1 ton of particulates, and it costs the brewery industry $1,400 to remove 1 ton of particulates. In an effort to reduce particulate pollution, the government gives each industry tradable allowances worth 50 tons of particulates. We would expect that:

the brewery industry will buy tradable allowances from the paper industry at a cost between $1,000 and $1,400 per allowance.

Since a competitive firm sets MR = P to determine all quantities in the short run, we can conclude that:

the demand curve faced by each individual competitive firm is perfectly elastic.

when the price of coke goes up, what probably happens to he demand for pepsi, a substitute for coke?

the demand for pepsi increases

which of the following is true only at the market equilibrium?

the quantity people demand is equal to the quantity producers supply

Which of the following is a possible effect of a price floor?

the quantity supplied exceeds the quantity demanded

a slave redemption program would be most effective at reducing slavery when...

the supply of slaves is inelastic

How did the British successfully deal with the high mortality rate aboard ships carrying prisoners to Australia?

they switched from paying per prisoner who boarded the ship, to paying only for the prisoners who made it to australia alive

After a hurricane knocks out power to thousands of households, the price of electric generators increases threefold. According to economists:

this discourages the use of electric generators in low-value uses, making them more readily available for high-value uses.

Lynda and Timothy both make cakes, but each of them face a different trade-off when it comes to making the cake batter vs. the frosting. Their production possibilities are as follows: Lynda Timothy BatterFrosting BatterFrosting 20 0 30 0 10 15 15 10 0 30 0 20 Given this data, who should specialize in making cake batter?

timonthy

Hewlett Packard's pricing scheme is to sell printers at relatively low price and ink cartridges at relatively high price. This practice is known as:

tying

In the case of a perfectly price-discriminating monopoly, there is:

zero consumer surplus