Econ 2000 Final Keniston

When the tax is imposed in this market, buyers effectively pay what amount of the $10 tax?

$6

If the equilibrium price rises from $200 to $350, what is the producer surplus to new producers?

$7,500

In the United States, the marginal tax rate on individual federal income tax

increases as income increases

The two taxes that together provide the U.S. federal government with almost 80 percent of its revenue are

individual income taxes and payroll taxes

A positive externality

is a benefit to a market bystander

A profit-maximizing firm will shut down in the short run when

price is less than average variable cost

Suppose a tax is imposed that the buyers of a good must pay to the government. This will raise the

price paid by buyers and lower the equilibrium quantity

If the market price is $4, this firm will

produce 3 units in the short run and exit in the long run

Quantity C represents the output level where the firm

produces at the efficient scale

A university's football stadium is always sold out, and students who wait in line for hours may be turned away. This indicates

the ticket price is below equilibrium price

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $40. Assuming no transaction costs, which of the following represents an efficient solution?

Sophia offers Gabriel between $10 and $40 to not recline his seat. Gabriel accepts, and both parties are better off.

Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking, and the trash cans overflow with food wrappers on summer afternoons. Otherwise, it is a great place. The park is a common resource because

if too many people use it, one person's use diminishes other peoples' use

If muffins and bagels are substitutes, a higher price for bagels would result in an

increase in the demand for muffins

Alanna is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Alanna helps people organize their houses. Due to the popularity of her home-organization services, Farmer Alanna has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Alanna charges $25 an hour for her home-organization services. One spring day, Alanna spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce. Alanna's economic profit from farming equals

$-80

Carly sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.95 per knife for as many knives as Carly is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.50. Assume Carly is rational in deciding how many knives to sharpen. Her producer surplus is

$1.85

Suppose a tax is imposed on each set of headphones that is sold. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As a result of the tax, the equilibrium quantity of headphones decreases from 10,000 to 9,000, and the deadweight loss of the tax is $60,000. We can conclude that the tax on each pair of headphones is

$120

The amount of tax per unit is

$14

Given that MuffinHaus chooses the profit maximizing price and quantity, what profit level will it obtain?

$280

Gwen has decided to start her own photography studio. To purchase the necessary equipment, Gwen withdrew $2,000 from her savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gwen's annual opportunity cost of the financial capital that has been invested in the business?

$340

Which of the following price ceilings would be binding in this market?

$4

Joe is a shrimp fisherman who used $2,000 from his personal savings account to buy a boat and equipment for his shrimp business. The savings account paid 2% interest. What is Joe's annual opportunity cost of the financial capital that he invested in his business?

$40

If the price is $20, then consumer surplus in the market is

$45, and Quilana, Wilbur, and Ming-la purchase the good

Paul purchases a hamburger, and his consumer surplus is $3. If Paul is willing to pay $8 for the hamburger, then the price of the hamburger must be

$5 CS = WTP - P P = WTP - CS (5 = 8-3)

What is the amount of deadweight loss caused by the tax shown in the graph above?

$5000

Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. The tax revenue is

(P2-P8) x Q2.

Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct? (i) Marginal revenue equals $5. (ii) Average revenue equals $5. (iii) Price equals $5.

(i), (ii), (iii)

Allowing an inventor to have the exclusive rights to market her new invention will lead to (i) a product that is priced higher than it would be without the exclusive rights. (ii) desirable behavior in the sense that inventors are encouraged to invent. (iii) higher profits for the inventor.

(i), (ii), and (iii)

A seller in a competitive market

- can sell all he wants at the going price, so he has little reason to charge less. - will lose all his customers to other sellers if he raises his price. - considers the market price to be a "take it or leave it" price.

Using the midpoint method, between prices of $20 and $30, price elasticity of demand is about

0.33

If the price elasticity of demand for a good is 0.2, the a 3 percent decrease in price results in a

0.6 percent increase in the quantity demanded (0.2 x 3) = 0.6

Sally's Super Salon earned $3,750 in total revenue last month when it sold 125 haircuts. This month it earned $3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Sally's Super Salon is

1.14

A family on a trip budgets $1,000 for meals and gasoline. If the price of a meal for the family is $50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy 100 gallons of gasoline?

13 3.50 x 100 = 350 1000 - 350 = 650 650 / 50 = 13

If a monopolist faces a constant marginal cost of $20, how much output should the firm produce in order to maximize profit?

2 units

Use the graph above to analyze the effect of a $6 tax. What will be the new equilibrium quantity in this market?

20 units

What is the average tax rate of a person who makes $120,000? Income Tax Rate 0-50,000 20% 50,001-100,000 40% Over 100,000 60%

35%

If Al has taxable income of $165,000, his marginal tax rate is

36%

Suppose Phil and Miss Kay are the only consumers in the market. If the price is $10, then the market quantity demanded is

4 units

A benevolent social planner would prefer

420 units to any other quantity of output

What is the marginal product of the third worker?

60 units

Which of the following would cause the supply curve to shift from Supply A to Supply C in the market for beach towels?

A decrease in the price of cotton

A neighborhood voted to develop a vacant lot into a vegetable garden. All of the neighbors worked the land and sowed the seeds. A few neighbors picked and ate the produce before the other neighbors had a chance. Which of the following could solve this example of the Tragedy of the Commons?

A. The neighborhood divides the lot into equal size plots and each family can plant and harvest only on their plot. B. The neighborhood continues to work the land and sow the seeds as a group, but sells all of the produce to willing buyers and reinvests the proceeds into the garden for the next year. Both A and B are possible solutions to this example

When the government places a new tax on a good,

All the above there is a decrease in the quantity of the good bought and sold in the market, government collects revenues, and a wedge is placed between the price buyers pay and the price sellers receive.

If the price is $2 in the short run, what will happen in the long run?

Because the price is below the firm's average variable costs, the firm will shutdown

A progressive tax is illustrated by

C

Which of the following events must result in a higher price in the market for cigars?

Demand for cigars increases, and supply of cigars decreases

Which of the following graphs in the figure reflects a decrease in the price of good Y only?

Graph d

Which of the following statements is correct?

Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced.

Which of the following is not an example of a barrier to entry?

John Jr. owns the best seafood restaurant in a popular resort area. He charges high prices because the quality of the food is so good.

What price will the monopolist charge?

K

Which of the following is an example of a positive externality?

Mary not catching the flu from Sue because Sue got a flu vaccine

Which of the four panels represents the market for cars as a result of the adoption of new technology on assembly lines?

Panel c

For a particular good, an 8 percent increase in price causes a 4 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The market for the good is broadly defined

Which of the following events would cause a movement downward and to the left along the supply curve for mangoes?

The price of mangoes falls.

What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties, and fewer used textbooks are sold?

The price will be ambiguous

Consider the following problems: overcrowded public highways, overfishing in the ocean, polluted air, and the near-extinction of the wild rhinoceros. What do these problems have in common?

They are all the result of a failure to establish clear property rights over something of value

Suppose that COVID shots create a positive externality equal to $9 per shot. Further suppose that the government offers a $9-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of COVID shots produced?

They are equal

How much output will the monopolist produce?

W

A city street is

a common resource when it is congested, but it is a public good when it is not congested.

If macaroni and cheese is an inferior good, then an increase in

a consumer's income will cause the demand curve for macaroni and cheese to shift to the left

Which of the following firms is the closest to being a perfectly competitive firm?

a hot dog vender in New York

At a price of $8, there is a

a shortage of 8 units

Which of the following would cause the demand curve to shift from Demand A to Demand B in the market for oranges in the United States?

an announcement by the FDA that oranges prevent heart disease

On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then

an apple costs twice as much as a light bulb

Resources tend to be allocated inefficiently when goods

are available free of charge

A fundamental source of monopoly market power arises from

barriers to entry

A surplus of a good would result when a

binding price floor is imposed on a market

For which of the following goods is the income elasticity of demand likely highest?

boats

Which of the following require firms to pay to pollute? (i) corrective taxes (ii) tradable pollution permits (iii) pollution regulations

both (i) and (ii)

Consider the market for fans in equilibrium. A summer of unseasonably cool weather would cause

both the equilibrium price and quantity to decrease

A good will have a more inelastic demand,

broader the definition of the market

Suppose that a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will

increase consumer surplus

Suppose that the organic-produce industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

cause the market supply to decline and the price of organic produce to rise

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not

choose the price at which it sells its butter

The Mansfield Public Library has a large number of books that anyone with a library card may borrow. Anyone can obtain a card for free. Because the number of copies of each book is limited, not everyone can have the same book at the same time. What type of good would the library books be classified as in this case?

common resources

Area C represents the

consumer surplus to new consumers who enter the market when the price falls from P2 to P1

Consider the market for new DVDs. If DVD players became cheaper, buyer expected DVD prices to fall next year, used DVDs became more expensive, and DVD production technology improved, then the equilibrium price of a new DVD would

could rise, fall, or remain unchanged

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

decrease the price of ice cream

If Farmer Green plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Farmer Green's production function exhibits

diminishing marginal product

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.

Opponents of alcohol taxes often argue that liquor and marijuana are substitutes so that high liquor prices

encourage marijuana use, but the evidence does not support this argument

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

If the market starts in equilibrium at point Z in panel b, a decrease in demand will ultimately lead to

fewer firms in the market

National defense is provided by the government because

free-riders make it difficult for private markets to supply the socially optimal quantity

A negative externality will cause a private market to produce

more than is socially desirable

A decrease in the price of peaches would lead to a

movement down and to the left along the supply curve for peaches

A competitive market is a market in which

no individual buyer or seller has any significant impact on the market price

A likely example of substitute goods for most people would be

pens and pencils

Suppose the government puts a tax on a market with inelastic supply and elastic demand, then

sellers will bear most of the burden of the tax

Suppose there is an increase in the price of steel. We would expect the supply curve for steel beams to

shift leftward

At a price of $15, there would be a,

shortage of 400 units

Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the

smaller is the price elasticity of supply

If the price were $8, a

surplus of 25 units would exist, and price would tend to fall

For a construction company that builds houses, which of the following costs would be a fixed cost?

the $30,000 per year salary paid to the company's bookkeeper

If the cross-price elasticity of two goods is 1.25, then

the goods are substitutes

If a firm uses labor to produce output, the firm's production function depicts the relationship between

the number of workers and the quantity of output

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that

there are economies of scale in retail sales

A key determinant of the price elasticity of supply is the

time horizon

If the supply of a product decreases, then we would expect equilibrium price

to increase and equilibrium quantity to decrease

Which of the following is the best example of a perfectly competitive market?

wheat

All else equal, a decrease in the price of the grain fed to turkeys would cause a move from

y to x