ECON 2000 FINAL

The following table shows the total output, number of workers employed, variable costs, and fixed costs of a firm. Refer to the table above. What is the firmʹs marginal cost per unit of output when it produces the 155th unit of the good?

$1

The following table shows the benefit that Evan derives from consuming pizza. The price of a slice of pizza is $4. Refer to the table above. If Evan eats 2 slices of pizza, how much consumer surplus does get?

$10

Scenario: Jim and Jane are the only residents of an apartment building. The figures below show their demand curves for security guards (in hours of duty per day) who staff the entrance to the apartment. To answer some of the questions below, it will be useful to find the equations of the two lines in the figure. Refer to the figure above. What is the maximum amount of money Jim and Jane together would pay to have 24 hours of security guardsʹ presence?

$10.00 per hour

Refer to the figure above. If the monopolist faces a constant marginal cost of $6, at what price should it sell its output to maximize profits?

$12

The figure below shows the demand (D) and supply (S) curves for Good X before and after a tax is imposed on each unit of the good sold. Refer to the figure above. If a per-unit tax of $3.00 is imposed on the sale of Good X, what is the size of the deadweight loss due to taxation?

$15 million

The following figure illustrates the demand and supply of decorative light bulbs in a perfectly competitive market. Refer to the figure above. What is the social surplus if the market is in equilibrium?

$150

The figure below shows cost curves of a firm in a competitive market. The firm always makes the choice to maximize its profit. Refer to the figure above. If the market price of the product is $3.25, what is the firmʹs total cost?

$2,700

Scenario: The production of a good creates a negative externality. The following figure shows the market for this good. Refer to the scenario above. The socially optimal price for this good is ________, while the market price of it is equal to ________.

$20; $14

The figure below shows cost curves of a firm in a competitive market. The firm always makes the choice to maximize its profit. Refer to the figure above. If the market price of the product is $3.25, what is the firmʹs revenue?

$3,900

Refer to the scenario above. If the marginal cost of a magic wand is $10, what price should Mr. Olivander charge to maximize his profit?

$35

John has to choose between two jobs, one that offers him $50 per hour and one that offers him $35 per hour. The opportunity cost of choosing the job that offers him $50 per hour is__?

$35 per hour

If a firm can sell 10 units of output for $15 each or 11 units at $14 each, the additional revenue from selling the eleventh unit is ________.

$4

If the opportunity cost of time is $20 per hour and an individual spends 20 hours in commuting every month, the opportunity cost of his commute is ________.

$400 per month

The following figure shows the demand and supply curves for USB flash drives at different price levels. D is the demand curve, and S1 is the initial supply curve. Refer to the figure above. When the demand curve for flash drives is D and the supply curve of flash drives is S1, the equilibrium price is ________.

$5

Refer to the figure above. What is the loss in the market-wide consumer surplus when the price of wine changes from $9 per bottle to $18 per bottle?

$57,000

The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive industry. Refer to the figure above. What is the maximum profit that the firm can make?

$60

The figure below shows the demand (D) and supply (S) curves for Good X before and after a tax is imposed on each unit of the good sold. Refer to the figure above. If a per-unit tax of $3 is imposed on the sale of Good X, what is the tax revenue received by the government?

$60 million

The following figure illustrates the market demand curve for wine. Refer to the figure above. What is the market-wide consumer surplus when the market price of wine is $9 per bottle?

$60,000

April runs a small bakery in northern Minnesota. Her most popular item is her homemade cranberry scone. As a pricing experiment, April raises the price of her raspberry scones by 5 percent and sees daily sales fall by 2 percent. From this experiment, April can estimate the price elasticity of demand for her cranberry scones as approximately ________.

0.4 percent

Refer to the figure above. If the supply curve for flash drives shifts from S1 to S2, with no change in the demand curve, the new competitive equilibrium quantity is ________ units.

10

The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive industry. Refer to the figure above. At what level of output does the firm maximize profits?

30 units

The following figure shows the marginal revenue (MR) and demand curves faced by a monopolist. Refer to the figure above. If the monopolist faces a constant marginal cost of $6, what is the optimal quantity that it should produce?

30 units

The following table shows the supply schedule of bread for three sellers in the economy. Assume that these three sellers constitute the entire market. 24) Refer to the table above. Assuming that the market consists of only these three sellers, what is the market supply when the price is $2 per loaf?

39 loaves

30) Refer to the figure above. When the demand curve for flash drives is D and the supply curve of flash drives is S1, what is the shortage in the market if the price is $4?

40 units

Scenario: Mr. Olivander has a monopoly on supplying magic wands. The table below shows the demand schedule for magic wands per day. Refer to the scenario above. If the marginal cost of a magic wand is $10, how many wands should Mr. Olivander sell to maximize his profit?

5

Suppose Z is a normal good. The equilibrium price and quantity of Z in the year 2013 was $25 and 60 units, respectively. In 2017, the equilibrium price of Z had increased to $35 but the equilibrium quantity had decreased to 50 units. Other things remaining the same, which of the following could explain this change?

A leftward shift of the supply curve of Z

There are about 2,000 nail salons in New York City. Most salons are small businesses and offer a wide array of services. Based on this information, which of the following best describes the structure of this market in New York City?

A monopolistic competition

Which of the following is an example of legal market power?

A patent

Which of the following is NOT an example of a natural monopoly?

Alcohol sales

If Project X has a cost of $6 and provides a benefit of $10 and Project Y has a cost of $25 and provides a benefit of $27, which of the following statements is true?

An individual can optimize by choosing Project X.

Scenario: Ron plays loud music, which prevents his neighbor from studying. He knows that his neighbor values studying at $5,000, while the cost of soundproofing Ron's room is $3,000. Refer to the scenario above. If Ron has the right to listen to music at night, how much does his neighbor need to pay him to stop playing music?

Any amount between $3,000 and $5,000

Which market is more likely to be perfectly competitive?

Bowls of white rice in Chinatown, New York City

The following figure shows the market demand curve for penicillin, an antibiotic medicine. Initially, the market was supplied by perfectly competitive firms. Later, the government granted the exclusive right to produce and sell penicillin to one firm. The figure also shows the marginal revenue curve (MR) of the firm once it begins to operate as a monopoly. The marginal cost is constant at $3, irrespective of the market structure. Refer to the figure above. What is the change in consumer surplus when the market changes from perfect competition to a monopoly?

Consumer surplus decreases by 135 units.

Scenario: In Brazil, more than 60 percent of sugar cane grown is harvested by hand. In São Paulo state, nearly 300,000 workers are employed in sugar cane harvesting. Manual harvesting requires burning the cane fields prior to harvest to remove the caneʹs sharp leaves and drive snakes from the fields. Burning the cane fields, however, gives off large quantities of ammonia and nitrogen oxide, which lead to ozone creation. In São Paulo state, a layer of ash covers cars, and nitrogen oxide levels double during the harvest period. The nitrogen oxide produced from burning the cane fields can lead to acid rain and changes in water quality. Refer to the scenario above. The deadweight loss arising from hand-harvesting is represented by area in the graph below.

D

Las Vegas, Nevada, is a popular vacation destination for residents of Hawaii. If the Hawaiian economy experiences strong economic growth and, as a result, household incomes increase on average by 10 percent, what will likely happen to the demand for airplane tickets from Hawaii to Las Vegas?

Demand will increase

If the demand for gem-quality diamonds decreases AND the supply of gem-quality diamonds decreases, what can be said about equilibrium price and quantity in this market?

Equilibrium quantity will fall, but the change in equilibrium price is uncertain.

Which of the following is true of perfect competition in the long run?

Firms earn zero economic profit because of free entry and exit of firms

In Louisiana, florists must pass a special licensing exam to be able to open a retail flower business. They must know the proper storage temperature for plants, wiring methods for various flowers and how to construct a cascade bouquet. Aspiring florists must purchase study materials, and take a written exam with a relatively low pass rate; if they succeed they pay $100 a year. The Pelican state is the only state in the country that requires a license to sell flowers, a distinction that has become a point of contention among florists who say it legitimizes their trade and state lawmakers who feel Louisiana is too overwhelmed with a dizzying number of professional license requirements. State lawmakers wanted to cut back on the number of licenses by eliminating the floral one. That has drawn the ire of florists who take pride in regulating their profession - by weeding out people who know little about floral arrangements. Adapted from: https://www.foxnews.com/politics/effort-to-eliminate-florist-licenses-in-louisiana-becomes-a-thorny-issue Refer to the scenario above. Which condition of a perfectly competitive market could most directly be hampered by the licensing requirement?

Free entry to and exit from the market.

The following figure shows price versus quantity for a market. Refer to the figure above. On what interval of quantity does total revenue increase when quantity increases?

From 0 to Q2

The development of genetically modified soybean seeds such as Roundup Ready seeds lowered tillage costs for soybean growers. How will this technological advance affect the supply of soybeans?

Increase in supply

The figure below shows the demand (D) and supply (S) curves for Good X before and after a tax is imposed on each unit of the good sold. Refer to the figure above. The loss in consumer surplus due to the imposition of the tax is given by the areas ________.

JBIE and BIA

Which of the following statements is true of marginal analysis?

Marginal analysis compares the consequences of doing one more step of something.

Which of the following graphs correctly represents a natural monopoly market?

Market 3

Which of the following is an example of a public good?

National defense

The federal government spends most of its revenue on which top two categories?

National defense and Social Security

Which of the following suggests that a competitive firm earns zero economic profits?

P = MC = ATC

Which of the following applies to both perfect competition and oligopoly without product differentiation?

P = MR = MC

Which of the following pairs of goods is likely to be considered complements?

Pens and writing pads

For 2017, the U.S. individual income tax has seven different marginal tax rates ranging from 10 percent to 39.6 percent. The U.S. individual income tax is what type of tax?

Progressive tax

Scenario: In Brazil, more than 60 percent of sugar cane grown is harvested by hand. In São Paulo state, nearly 300,000 workers are employed in sugar cane harvesting. Manual harvesting requires burning the cane fields prior to harvest to remove the caneʹs sharp leaves and drive snakes from the fields. Burning the cane fields, however, gives off large quantities of ammonia and nitrogen oxide, which lead to ozone creation. In São Paulo state, a layer of ash covers cars, and nitrogen oxide levels double during the harvest period. The nitrogen oxide produced from burning the cane fields can lead to acid rain and changes in water quality. Refer to the scenario above. In the graph below, the socially optimal level of production occurs at which point?

Q2

Scenario: There are several pen manufacturers in Corinthia. However, the pens sold by each manufacturer have a unique design. Refer to the scenario above. How will the demand for pens faced by the existing pen manufacturers in Corinthia be affected if new firms enter the industry in the long run?

The demand faced by the existing firms will decrease.

Which of the following is a difference between an oligopoly with differentiated products and a monopolistically competitive market?

There are huge barriers to entry in an oligopoly with differentiated products, while there are minimal barriers to entry in a monopolistically competitive market.

Which of the following is an example of marginal analysis?

To determine the optimal number of workers, a firm calculates the net benefits of hiring an extra worker.

The following figure shows a consumerʹs budget constraint for jeans and sweaters. 7) Refer to the figure above. Suppose B1 is the original budget constraint of a consumer. A change in the budget constraint from B1 to B2 indicates ________.

a decrease in the price of sweaters

which of the following is most likely to be an example of causation?

a fir producing compact fluorescent light bulbs installs new machinery. Their per-day production of light build increases.

Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right, both by the same degree. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by ________.

a higher price and the same quantity

Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, and the shift in demand is greater than the shift in supply. Then in comparison to the initial equilibrium, the new equilibrium will be characterized by ________.

a lower price and quantity

The market outcome in a duopoly with homogeneous products is similar to that in ________.

a perfectly competitive market

Due to ongoing budget shortfalls, the city of Detroit has suspended services, such as street cleaning and maintenance of city-owned properties in several neighborhoods. In response, some homeowners in these neighborhoods sweep the streets, replace street lights, and mow the grass on city-owned lots. These actions by homeowners represent ________.

a positive externality in production

An increase in the demand for a good is represented by ________.

a rightward shift of a demand curve

which of the following best describes equilibrium?

a situation where no economic agent would benefit by changing his or her behavior

To carry out an optimization analysis, ________.

all costs are required to be converted to the same unit of measurement.

An externality occurs when ________.

an economic activity affects third parties not engaged in the activity

The Organization of the Petroleum Exporting Countries (OPEC) is an example of a ________.

cartel

22) The acai berry and products made from it are a popular dietary supplement, believed to reverse diabetes and lead to weight loss. Suppose that a peer-reviewed medical study reveals that there are no health benefits from consuming acai berry products. The likely effect of this medical study will be to ________.

cause a decrease in demand

Compared to a firm under perfect competition, a monopolist ________.

charges more and produces less

Dawn has preferences for minor league baseball games and NASCAR races. Minor league baseball tickets are $10 per game and NASCAR tickets are $20/race. Dawnʹs monthly budget of $90 allows her to buy five minor league baseball tickets and two NASCAR tickets. At this consumption bundle, her marginal benefit of the last baseball game is 30 and the marginal benefit of the last NASCAR ticket is 40. Dawn ________.

could increase her total benefit by buying more minor league baseball tickets and fewer NASCAR race tickets

Natural monopolies are characterized by facing a(n) ________.

declining average cost curve

Suppose Apple raises the cost of downloading a song from iTunes from $0.99 per song to $1.49 per song. This price increase will cause a(n) ________.

decrease in quantity demanded

which of the following statements is true of optimization?

economic agents who optimize attempt to choose the best feasible option given the info they have.

The U.S. coal industry has endured several years of economic losses as natural gas has replaced coal in electricity generation and other uses. At the same time, the solar panel industry in the United States has recorded large positive economic profits. If these markets are perfectly competitive, we would expect ________.

exit from the U.S. coal industry and entry into the solar panel industry

If firms in a perfectly competitive market are realizing economic losses in the short run, ________.

exit will occur, the market supply will shift in, and the market price will rise

A steel-producing factory in North Palladia generates large amounts of pollution during its production process. A per-unit tax on the production of steel that equals the marginal ________ of steel production will entirely internalize the externality.

external cost

Rural/Metro-a private, subscription-based fire protection and emergency service provider-was founded by Lou Witzeman in 1948. Witzeman lived in an unincorporated suburb of Phoenix that did not provide fire-fighting services. Witzeman canvassed his neighbors and found that nearly all of them promised to pay him $10/year to provide fire protection. After investing his last $900 in a truck and firefighting equipment, most of his neighbors refused to pay him. This is an example of a ________.

free-rider problem

The buyers of a good will want to purchase it as long as their willingness to pay for the good is ________.

greater than zero

U.S. Code Title 18 § 1696 states Whoever establishes any private express for the conveyance of letters or packets, or in any manner causes or provides for the conveyance of the same by regular trips or at stated periods over any post route which is or may be established by law, or from any city, town, or place to any other city, town, or place, between which the mail is regularly carried, shall be fined not more than $500 or imprisoned not more than six months, or both. The Code of Federal Regulation (CFR) Title 39 Section 310.2 states It is generally unlawful under the Private Express Statutes for any person other than the Postal Service in any manner to send or carry a letter on a post route or in any manner to cause or assist such activity. Violation may result in injunction, fine or imprisonment or both and payment of postage lost as a result of the illegal activity. Under these laws, the U.S. Postal Service ________.

has a monopoly power over private express mail

An omitted variable is a variable that ________.

has been left out, and if included, would explain why the variables considered in a study are correlated.

Consumer surplus is ________.

he difference between the willingness to pay for a good and the price paid for the good

Anne has chosen how many bagels and how many units of cream cheese she would buy this month. She has $20 to spend on these two goods. Suppose that her chosen combination, the marginal benefit per dollar for bagels is $6, and her marginal benefit per dollar for cream cheese is $10. If she decides to buy more bagels and less cream cheese, ________.

her marginal benefit per dollar for bagels will decrease, and her marginal benefit per dollar for cream cheese will increase

The long-run supply curve for a firm in a perfectly competitive industry is ________.

horizontal

economics is primarily the study of ___.

how agents choose to allocate scarce resources and how these choices affects society.

A model__.

if often teased on simplifying assumptions that are not necessarily true.

All else being equal, an increase in the price of Nike Air Jordan XXXI Fly Low shoes will cause an ________.

increase in quantity supplied

The equilibrium quantity in a perfectly competitive market is determined at the point of ________.

intersection of the demand and supply curves

Price discrimination is never perfect because it ________.

is impossible to know every consumersʹ willingness to pay

Two goods are said to be substitutes when a fall in the price of one good ________.

leads to a leftward shift in the demand for the other good

Scenario: The production of a good creates a negative externality. The following figure shows the market for this good. Refer to the scenario above. To restore the socially optimal outcome in this market, the government should ________.

levy a $10 tax per unit on this good

The quantity produced in a monopolistically competitive market is ________ than the quantity produced in a perfectly competitive market, and the price charged in a monopolistically competitive market is ________ than the price charged in a perfectly competitive market.

lower; higher

which of the following statements correctly highlights the difference between microeconomics and macroeconomics?

micro deals with the small part if the economy whereas macro deals with aggregate economic performance.

The following figure shows the cost curves on a firm that operates in a competitive market. Assume that all the firms in this market have identical cost structure. Refer to the graph above. Which of the following graphs, correctly represents this competitive marketʹs demand and supply in the long run?

midterm 2: 24. C

An outcome is Pareto efficient if ________

no individual can be made better off without making someone else worse off

Public goods are ________ in consumption.

non-excludable and non-rival

The view of a spectacular sunset on a beach is a(n) ________.

non-rival good

The entry of new firms into a market will ________ if the market power of the existing firms is small.

not change the market price

the best alternative use of a resource is referred to as its__.

opportunity cost

The increasing popularity of hot dogs in a food joint has pushed up their prices, making it unaffordable for many students living in the surrounding areas. This is an example of a ________.

pecuniary externality

A shortage occurs in a market when ________.

price is lower than the equilibrium price

The entry of new firms into a market will ________ if the market power of the existing firms is large.

reduce the market price

In a perfectly competitive market, ________.

sellers produce identical goods

When buyers and sellers optimize in a perfectly competitive market, ________.

social surplus is maximized

Gabrielʹs demand for chocolate bars is inelastic. If the price of chocolate bars increases, he will ________.

spend more amount of money on chocolate than before

A marginal tax rate is the ________.

tax rate on the last dollar of income earned

An optimizing consumer makes her purchase decisions based on ________.

the benefits per dollar spent at the margin

The figure below shows the cost curves of a firm in a competitive market. The firm always makes the choice to maximize its profit. Refer to the figure above. If the price is more than $1.50 but at most $2.00, the firm should produce ________.

the quantity at which the marginal cost equals the price, even though the firm would make a loss

The demand for a good is elastic. This means that if there is a 10% change in price of this good, ________.

the quantity demanded will change more than 10%

If negative externalities are present in a market, ________.

the quantity supplied in the market is larger than the socially optimal level

In equilibrium, ________.

the ratio of marginal benefits to price should be identical across all goods

The demand for chocolate is perfectly inelastic in Carritos Island. If a tax is imposed on chocolate, ________.

the tax burden will fall entirely on buyers

The following graph represents the total production of a firm on the y-axis, and the number of employees on the x-axis. Refer to the figure above. Diminishing marginal returns begin to occur when ________.

the third worker is hired

The concept of diminishing marginal utility states that ________.

the willingness to pay for an additional unit declines as more of a good is consumed

Consider a market where the demand curve is downward sloping and the supply curve is upward sloping (so they are neither vertical nor horizontal). If the consumersʹ willingness to pay for the hundredth unit and the sellerʹs willingness to accept for the 175th unit are both $5.00, then ________.

there is an excess supply of 75 units at the price of $5.00

If firms in an oligopoly industry producing differentiated products collude, ________.

they collectively produce the monopoly output level and divide the monopoly profits

Several businesses and organizations in Hawaii, including hotels, practice what is called kamaʹaina pricing. Under this pricing strategy, customers with a valid Hawaii driverʹs license are charged the lowest price, customers with a valid military identification card are charged slightly higher prices, and all other customers are charged the highest price for the identical good or service. This is an example of ________.

third-degree price discrimination

The following figure shows the budget constraint of Lesley when she is faced with two goods: burgers and ice cream. Refer to the figure above. If Lesleyʹs budget for burgers and ice creams is cut by half, Lesleyʹs new budget constraint ________.

will cross the vertical axis at 5, and will cross the horizontal axis at 3

The following figure shows the budget constraint of Lesley when she is faced with two goods: burgers and ice cream. Refer to the figure above. If the price of a burger doubled, Lesleyʹs new budget constraint ________.

will start from the same point on the vertical axis, but will cross the horizontal axis at 3