Econ 142 Final

Consider the market for lawn moving and trimming service in Kansas City; a market made up of many providers (probably hundreds) all providing a service that is similar but not identical to each other. This market would be characterized as...

monopolistic competition

You own a coffee shop where labor is your only variable input. When 3 workers are employed the AP is 55. When 4 workers are employed the AP is 50. The wage paid to each worker is $35. Fixed costs are $100. What is your MC?

$1

What is the equilibrium Price in this market?

$120

What will be the new price that consumers pay under the tax?

$124

At the correct profit maximizing level of output identified in the question above which of the following comes CLOSEST to this firm's profits?

$165

When output = 9 fixed costs are $60. When output = 10 average variable costs are $15. When output = 11 marginal costs are $10. The average total cost when output = 11 is...

$20

At the profit maximizing level of output identified above what are the firm's profits per unit?

$23.57

Assume you are at the intersection of curves A and B. The equilibrium price in this market is _____ and the equilibrium quantity is _____.

$284, 88

Assume capital (equipment) is fixed, and labor is the only variable input. Assume the wage is $200 per worker per day, you are employing 4 workers and AP with 4 workers is 80, and AP when you only had 3 workers was 90. The marginal cost when you are using 4 workers is...

$4

What is the equilibrium price in this market?

$40

What is the amount of government revenue generated by this tariff?

$600

After free trade has opened up, what is the value of consumer surplus?

$8,450

You demand equation is P=140-2Q and your supply equation is P=20+2Q. A $16 tax is placed on the seller of this good. What is the price that the consumer will pay after the tax is imposed?

$88

Use the following information to answer the next 3 questions. You are assistant manager of gourmet cheese shop. Your boss wants to increase the shop's revenues and has put you in charge of accomplishing this. Because this is a gourmet shop your boss does not want you having a "sale" because he thinks it will affect the shop's reputation. Therefore he wants you to increase revenues by increasing either the price of the Stilton (S) or the Manchego (M). The last time you increased the price for the Stilton (S) the price per pound changed from $15 to $18 and the quantity sold per wee decreased from 90 to 82. The last time you increased the price for Manchego (M) the price per pound changed from $22 to $24 and the quantity sold per week decreased from 80 to 72. Which of the following comes closest (in absolute value) to the elasticity of demand for the Stilton (S)?

.51

In the textbook AND in class we discussed what factors ARE the KEY drivers and which factors ARE NOT the KEY drivers of increasing healthcare costs in the U.S. Based on that information answer the next two questions. Consider the following three possible causes of increasing healthcare costs in the U.S.: 1. The overall aging of the population 2. Distorted economic incentives 3. Uninsured people are treated in the emergency room.

1 and 2 were identified as key drivers of increasing healthcare costs; 3 was not.

Consider these 3 statements: 1. This firm could be a monopolistically competitive firm 2. This firm could be a perfectly competitive firm 3. This firm could be a monopoly Which is most accurate based on the table?

1 and 3 are possible; 2 is not.

Consider these 4 (very real) headlines: 1. U.S. Economy Grows at 3.7% in Second Quarter 2. New product Offering by Apple Fails to Excite Consumers 3. Travel Industry Benefitting from Low Oil Prices 4. U.S. Unemployment Drops to 5.1%, Lowest in 8 years Which is correct?

1 and 4 describe macroeconomic subjects; 2 and 3 describe microeconomic subjects.

Consider three different markets in the city of Lawrence and answer this question based on the product or service offered in the market, NOT on whether the market is regulated or not... 1. The market for cheeseburgers (like those sold by Burger King) 2. The market for cable or satellite T.V. 3. The market for electricity As discussed in class, what is the proper order of these markets if we want to rank them "least market power" to "most market power" (least market power is first).

1 then 2 then 3

Which of the following comes closest (in absolute value) to the price elasticity of demand for the Manchego (M)?

1.21

You work at Starbucks. Last week pumpkin spice lattes sold for $4.50 and you sold 500 of them. This week you're having a sale, and the price is now $4.00, and you sell 590 of them. Which of the following (in absolute value) is your price elasticity of demand?

1.4

What is the opportunity cost of 1 ton of corn in the Brazil?

1.5 tons of sugar

In the course of a year Mexico can produce 140 tons of sugar or 70 tons of corm, or some of both. in the course of a year Brazil can produce 180 tons of sugar of 120 tons of corn, or some of both. Use this information (and the graph above if you like) to answer the next 4 questions following the procedure we used in class. What is the opportunity cost of 1 ton of sugar in Mexico?

1/2 (or .5) a ton of corn

Now assume free trade opens up, and the country begins importing this same good at an international price of $70. What will be the quantity imported under free trade?

105

Which of the following would be an acceptable "terms of trade" between these two countries?

12 tons of sugar for 7 tons of corn

What is the value of consumer surplus in this country right now, before international trade opens up?

1800

Consider the following 3 statements: 1. Wages today for most workers are too low 2. Wages today are more unequal than they were 20 years ago. 3. Wage inequality will be a key issue in next year's elections.

2 and 3 are positive statements; 1 is a normative statement.

Consider the following three possible causes of increasing healthcare costs in the U.S.: 1. Bureaucracy and paperwork 2. The fact that healthcare exhibits "cost disease" 3. The fact that doctors must pay for malpractice insurance

2 was identified as a key driver of increasing healthcare costs; 1 and 3 were not.

What is the value of AVC when 3 workers are hired?

20

Use the following information to answer the next 2 questions: You have two goods, Good A and Good B. You have ALREADY calculated the elasticities of demand for these two goods and obtained the following numbers (in absolute value): Elasticity of Demand for A: .80 Elasticity of Demand for B: 1.40 The current quantity demanded of A is 200, and the current price of A is $20. The current quantity demanded of B is also 200, and the current price of B is $30. Choose the good, A or B, who's price you would decrease if you wanted to increase revenues. Using the formula we used in class, decrease that price 5% and tell me which of the following comes closest to the new quantity demanded of that good?

214

What is the value of MC when 5 workers are hired?

26

Complete this table as necessary to answer the next 3 questions. You do not need to complete any cell with "---" in it. Do not worry if your decimals do not match exactly; it will not affect your answers. You only need to complete as much of the table as you need to answer the questions. Q FC VC TC AVC ATC MC 0.0 40 -- 40 -- -- -- 1.0 40 23 63 23 2.0 82 41 3.0 54 12 4.0 17 27 5.0 130 6.0 27.67 7.0 26 56 8.0 40 312 34 39 9.0 44 124 10.0 11.0 At what level of output (what Q) is MC minimized?

3

Now assume that a 20% ad valorem tariff is applied to this good. What will be the new quantity imported under the tariff?

30

What is the current value of producer surplus in this market?

312.5

What will be the value of consumer surplus under this quota?

3200

What percentage of persons in the U.S. receive their health insurance through the government?

36%

What is the value of deadweight loss under the price ceiling (in the question above)?

375

Which of the following is most likely the elasticity of demand (in absolute value) for this good as we move from Point B to Point C?

4.2

At what level of output (what Q) is ATC minimized?

5

Now, following directly from the question above, assume there is a technology improvement in this market. Which of the following would be the new equilibrium price we'd see in this market?

50

Which of the following comes closest to the value of consumer surplus in this market?

6,400

Us this information to answer the next 3 questions following the procedure we used in class: Your demand equation is P=360-2Q and your supply equation is P=30+Q. This is an importing country. Now, assume international free trade opens up and the international price is $100. What is the quantity that will be imported at this international price?

60

Based on your answer to the question above, which of the following comes closest to the new total revenues you will be generating after you have decreased the price of the good, and the quantity demanded of the good has increased?

6099

Your demand equation is P=80-Q and your supply equation is P=5+2Q. What is the value of producer surplus in this market?

625

Consider this set of information for a firm and answer the next 2 questions: Q of Output Total Revenues Total Costs 0 0 150 1 40 240 2 76 320 3 108 380 4 136 410 5 160 440 What is AVC when output = 4?

65

Consumer surplus in this market is

7744

NOW assume a $6 per unit tax is placed on the seller of this good. What will be the new quantity purchased under this tax?

78

Now, instead of a price floor, assume a price ceiling of $30 is imposed in this market. What is the value of consumer surplus under this price ceiling?

900

Now assume it is discovered that this good exhibits a positive externality. "Incorporate" this externality as we did in sample questions and in class. After incorporating this externality the new quantity in the market will be _____ and the new consumer surplus in the market will be _____.

96, 9216

Assume a price floor of $55 is imposed in this market. what is the value of producer surplus under the price floor?

975

You are looking at the demand and supply of mcDonald's cheeseburgers. You look online and see that two things occur: First, 1000 new McDonald's are opening up in the next few weeks, and second, the price of beef (an input) decreases. In the market for McDonald's cheeseburger's we will see, after any/all curves have moved:

A higher equilibrium quantity and a lower equilibrium price.

You are looking at the supply and demand for hot dogs. You open up the newspaper and read that both buyers AND sellers of hot dogs expect the price to decrease in the near future. On this graph, after any/all curves have moved, we will see:

A loxer equilibrium price and we cannot say about equilibrium quantity.

Which of the following will not cause an increase in the demand for Chipotle burritos?

A reduction in the price of Chipotle burritos

The demand curve for your product is P=180-2Q. The supply curve for your product is P=60+4Q. A price ceiling of $112 is imposed in this market. As a result we will see...

A shortage of 21 units.

As discussed in the text, which of the following four good/services would be considered "non-rival" and "excludable"?

A toll road

Assume a firm has fixed costs of $100. If labor is this firm's only variable input, and the wage (per worker) is $15, and 10 units of labor are used, and AP is 5, what if AVC?

AVC = 3

Which of the following will NOT have the effect of producing a higher equilibrium price?

Actually all three of the above would have the effect of increasing equilibrium price.

Complete the following table as necessary to answer the next three questions. You do not have to complete any more of the table than you need to in order to answer the questions. Assume labor is your only variable input, and assume the wage is $260 Units of Labor Total Product 1 12 2 25 3 39 4 51 5 61 6 66 7 68 Average Product Marginal Product At what point does this firm start to realize diminishing marginal returns (or diminishing marginal productivity, same thing)?

After the third worker is hired.

According to the textbook, which of the following countries has what some economists would refer to as a "mixed" economy?

All of the above

Consider the following three statements based on our in-class discussions and the graphs in class and in the textbook: 1. Under both a tariff and a quota customers pay a lower price than they paid in autarky 2. Under both a tariff and a quota consumer surplus is larger than it would be in autarky 3. Under both a tariff and a quota producer surplus is smaller than it would be in autarky Which of the following is most accurate?

All three (1,2, and 3) are correct

Consider these three statements: 1. Individual firm faces a downward-sloping demand curve 2. Firm will not produce at the low point on ATC curve 3. Firm will charge a P that is > MC Which of the following is most accurate?

All three statements describe both monopoly and monopolistic competiton.

Your firm is a coffee shop. Your fixed costs are the cost of the shop, $900. Your variable costs are the costs of labor and the wage paid to each worker is $120 each. Employing 3 workers your average product is 46 cups of coffee. Your average total cost is:

Approximately $9.13

As discussed in lecture and the text, the "individual mandate" portion of "Obamacare" is intended to accomplish what goal?

It is a form of risk pooling

An economist at the University of Colorado is studying the cross-price elasticity between beer and marijuana and calculates a number of negative 1.2. What do we know from this?

Beer and marijuana are complements.

Consider these two events (consider them separately): 1. Buyers of new condos in Las Vegas expect the prices to increase in the near future. 2. The price of building supplies for new condo in Vegas has decreased. Which is correct?

Both 1 and 2 will result in a higher equilibrium quantity of new condos in Las Vegas.

Consider these two statements: 1. The price of cookies--a substitute in production for cake--increases. 2. The price of sugar--an input to cake--decreases Which of the following is correct?

Both 1 and 2 will shift the supply curve for cake, but only 1 will shift it left.

The marginal revenue of Firm X does not change, regardless of how much output it produces and sells. the marginal revenue of Firm Z DOES change, depending on how much output it produces and sells. What do we know for sure?

Both A) and b)

Based on the elasticity you decided on in the previous question, which of the following is most accurate?

Both b) and c) but not a)

Which of the following is correct? Based on the information above...

Brazil has a comparative advantage in corn production

Which of the following is not one of the barriers to entry we discussed in class?

Collusion (price fixing)

You are looking at the supply and demand for cherry pie. You open up the paper and see that the price of cherries (obviously an input to cherry pie) has increased. After any/all curves have shifted what do we know will happen for sure?

Consumer surplus will decrease.

Consider the following table: Curve 1 Curve 2 Curve 3 P Q P Q P Q 42 22 46 30 40 22 46 30 44 32 42 26 50 38 42 34 44 30 54 46 40 36 46 34 Which is correct?

Curve 1 is a supply curve and, compared to it, Curve 3 is an increase in supply.

What is the name of the long run phenomenon where average costs decrease as the amount of output you produce increases?

Economies of scale

As discussed in lecture and in the text, which of the following most accurately describes health care?

Healthcare exhibits positive externalities, it is rival in consumption, and it is excludable.

Which of the following statements is correct; Based on the information above...

I should increase the price of the Stilton (S) if I want to increase revenues because the demand is inelastic.

In perfect competition, as discussed in class, which of the following would cause the firm to "shut down"?

If the market price is < AVC

As discussed in class, which of the following is correct regarding the difference between the short run and the long run?

In the long run all inputs can vary

You are looking at the market for hot dogs. Consider two different things happening: 1. The price of hot dog buns increases significantly. 2. Buyers of hot dogs expect the price of hot dogs to increase in the near future. Which of the following is correct?

In the market for hot dogs only 1 would cause the demand curve to shift left.

If a good is a normal good but a necessity what do we know?

Income elasticity for this good will be a positive but small

Which of the following accurately characterizes a common resource (such as fish in the ocean)?

It is rival in consumption and non-excludable

What is the term for the low point on the long run average cost curve?

Minimum efficient scale

What was the term in information economics we used for the situation where, after entering a transaction, a person changes their behavior? For example, after a student buys renter's insurance he/she goes off and leaves the door to the apartment unlocked?

Moral hazard

As specifically discussed in the text, _____ is the situation where a good or service is produced in accordance with consumer preferences.

None of the above.

In 2008 we saw the price of apples increase significantly. Apples are (of course) an input to apple pie. In the market for apple pie this would ultimately cause us to see...

None of the above.

This Saturday night John and Terri are planning to go to the movies to see "Ant-Man". They will be gone a total of 3 hours. During that time they will pay a baby sitter $10 per hour to watch their kids ($30 total), and the movie tickets will cost $10 each, a total of $20. The opportunity cost of John and Terri attending the movie will be...

None of the above.

Now assume that a quota of 30 units is placed on this good. Following the procedure we used in class, what will be the price that we ultimately see in the market under this quota?

P=120

Use the information in the following table to answer the next two questions. P Q P Q 60 70 62 78 70 80 68 72 Based on elasticity of demand, this good...

Probably is a necessity

As the price of Product X decreases the demand curve for Product Y shifts right. What do we know for sure?

Product X and Product Y are complements.

If the price this product sells for, in the market, is $30 what is the highest level of output you would produce?

Q = 6

Use this table to answer the next nine questions. You do not need to fill in any cell with "---" in it, and you do not need to fill in any more of the table than you need to in order to answer the questions. DO NOT BE CONCERNED IF YOUR DECIMALS ARE A BIT OFF. IT WILL NOT AFFECT THE ANSWERS BELOW. Q P TR MR TC ATC/AC MC 0 122 0 --- 80 --- --- 1 119 119 119 160 160 80 2 116 113 230 3 113 63 4 110 88 5 107 410 58 6 104 60 7 101 542 8 98 624 78 9 95 719 10 92 82 101 11 89 938 12 86 90.667 13 83 98.154 188 14 80 1508 107.71 15 77 1820 121.333 16 74 141 436 Assume this firm is a monopolistically competitive firm. If the firm is allowed to choose whatever level of output it wants to what level of output will maximize the firm's profit?

Q = 7

Firm Z is operating in a perfectly competitive market. For Firm Z the level of output where P is closest to MC is Q = 24, and when Firm Z produces Q = 24 its TC is $600 and fixed costs are $100. If the market price of Firm Z's product is $26 what will happen next?

Several new firms will enter the market

In our discussion and in the text, healthcare in the United Kingdom could best be described as _____ while health care in Japan could best be described as _____.

Socialized medicine; universal health insurance

Which of the following was NOT one of the arguments in favor of tariffs that was discussed in class? (notice I am not asking if the argument is correct or not; I am simply asking which argument(s) was/was not discussed in class.)

Tariffs are a good way for the government to earn revenue.

Which of the following is correct?

The consumer is bearing most of the burden of this $6 tax.

As the price of Product A increases the demand for product B decreases. As a result we know with certainty...

The cross price elasticity between Products A and B is a negative number.

When P=$16 the Q-demanded = 24; when P=$14 the Q-demanded = 30; when P=$12 the Q-demanded = 36; when P=$10 the Q-supplied = 20; when P=$14 the Q-supplied = 30; when P=$18 the Q-supplied = 40. A price ceiling of $16 is imposed in this market; as a result we will see...

The equilibrium quantity

Consider the following three formulas 1. change in total output/change in quantity of inputs 2. change in total revenues/change in output 3. change in total revenues/change in quantity of inputs Which statement is correct? If I am a monopolistically competitive firm and I want to maximize profits I want to find...

The quantity of output where "2" is closest to (or just greater than) marginal cost

Assume a $10 tax is placed on this good. Which is correct?

This tax will be split equally (or almost equally) between the buyer and seller.

Marginal cost is the change in _____ divided by change in _____, while marginal product is change in _____ divided by change in _____.

Total cost; output; total product; quantity of inputs

Which of the following is correct?

X is an inferior good; an increase in your income will cause the demand for X to decrease.

The store you work in sells sunglasses. You have already calculated the elasticity of demand for your sunglasses and it is (in absolute value) .82. Your boss wants to have a sale in order to increase the store's revenues. Your advice to your boss is...

You should not have the sale because demand for this good is inelastic.