Econ 2000 Practice Tests 1 and 2

Refer to Table 13-15. What is average fixed cost when output is 40 units?

A. $1

Refer to Table 12-6. For this tax schedule, what is the total income tax due for an individual with $49,000 in taxable income?

A. $12,650

Refer to Figure 7-24. At equilibrium, total surplus is measured by the area

A. ABD

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus after the tax is measured by the area

A. M

The flatter the demand curve through a given point, the

A. greater the price elasticity of demand at that point.

"Other things equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well." This relationship between price and quantity supplied

A. is referred to as the law of supply.

The price elasticity of demand measures how much

A. quantity demanded responds to a change in price.

Food and clothing tend to have

A. small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these goods.

One reason that deadweight losses are so difficult to avoid is that

A. taxes affect the decisions that people make.

The tax on cigarettes is an example of

B. a corrective tax.

When a firm is experiencing economies of scale, long-run

B. average total cost is greater than long-run marginal cost.

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the

B. demand for the good is said to be inelastic.

The market for ice cream is a

B. highly competitive market.

An optimal tax is one that minimizes the

B. total deadweight loss from the tax.

In a long-run equilibrium, the marginal firm has

B. total revenue equal to total cost.

Which of the following events would cause the price of oranges to fall?

C. The price of land throughout Florida decreases, and Florida produces a significant proportion of the nation's oranges.

The supply curve for a good is a line that relates

C. price and quantity supplied.

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

C. social value exceeds the private value at the private market solution

To say that a price ceiling is binding is to say that the price ceiling

D. All of the above are correct.

Corrective taxes

D. give factory owners an economic incentive to reduce pollution.

Which of the following is not a cost of taxes to taxpayers?

D. goods and services provided by the government

Consumer surplus

D. measures the benefit buyers receive from participating in a market.

You wear either shorts or sweatpants every day. You notice that sweatpants have gone on sale, so your demand for

D. shorts will decrease.

A movement along the demand curve might be caused by a change in

D. the price of the good or service that is being demanded.

Refer to Scenario 12-3. How much consumer surplus does Regina receive from consuming her slice of cheesecake?

A. $3

Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

A. Compared to the original tax, the larger tax will decrease tax revenue.

Refer to Scenario 12-3. Assume that the government places a $2 tax on each slice of cheesecake and that the new equilibrium price is $7. What is the deadweight loss of the tax?

A. ZERO

Alexander lives in an apartment building and gets a $250 benefit from playing his stereo. Mary, who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo, bears a $350 cost from the noise. Mary would like to offer Alexander some money to turn down the volume on his stereo. If Mary had to hire a lawyer to draw up the contract, what is the maximum amount she could pay to the lawyer to ensure that both Alexander and Mary would benefit from the agreement?

A. an amount less than $100

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will

A. experience losses but will continue to produce rubber bands.

Refer to Figure 8-22. Suppose the government changed the per-unit tax from $3.00 to $4.50. Compared to the original tax rate, this higher tax rate would

A. increase tax revenue and increase the deadweight loss from the tax.

If the government removes a binding price ceiling from a market, then the price paid by buyers will

A. increase, and the quantity sold in the market will increase.

The demand for a good or service is determined by

A. those who buy the good or service.

Refer to Table 12-1. Assume that the price of a weekend ski pass is $45 and that the price reflects the actual unit cost of providing a weekend of skiing. How much consumer surplus accrues to Anna and Clem individually?

B. $105 and $30 respectively

Refer to Table 4-13. Suppose x = 1. Then the slope of the market demand curve is

B. -1/3.

Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point C and point D is about

B. 0.54.

Which of the following statements is correct?

B. A decrease in the size of a tax always decreases the deadweight loss of that tax.

Refer to Figure 4-20. At a price of $20, which of the following statements is not correct?

B. Equilibrium price is equal to equilibrium quantity.

The overuse of a common resource relative to its economically efficient use is called

B. The Tragedy of the Commons

In the long run a company that produces and sells kayaks incurs total costs of $15,000 when output is 30 kayaks and $20,000 when output is 40 kayaks. The kayak company exhibits

B. constant returns to scale because average total cost is constant as output rises.

Taxes on labor encourage which of the following?

B. mothers to stay at home rather than work in the labor force

The benefit to sellers of participating in a market is measured by the

B. producer surplus.

A tax imposed on the buyers of a good will

B. raise the price buyers pay and lower the effective price sellers receive.

The law of supply and demand asserts that

B. the price of a good will eventually rise in response to an excess demand for that good.

If the minimum wage exceeds the equilibrium wage, then

B. the quantity supplied of labor will exceed the quantity demanded.

When new firms enter a perfectly competitive market,

B. the short-run market supply curve shifts right.

Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

C. $1.60 and 42 units, respectively.

Marginal cost tells us the

C. amount by which total cost rises when output is increased by one unit.

When a firm is operating at an efficient scale,

C. average total cost is minimized.

The idea that "externalities arise because something of value has no price attached to it" is associated with

C. both public goods and common resources.

Suppose that a firm's long-run average total costs of producing small commuter jet airplanes increases as it produces between 2,000 and 4,000 airplanes. For this range of output, the firm is experiencing

C. diseconomies of scale.

The U.S. federal government collects taxes in a number of ways. Rank the following sources of revenue from the largest to the smallest.

C. individual income taxes, social insurance taxes, corporate income taxes

Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is

C. less than $6.30 but more than $4.50.

In the long run, assuming that the owner of a firm in a competitive industry has positive opportunity costs, she

C. will earn zero economic profits but positive accounting profits.

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by

C.between $0.50 and $1.

Refer to Table 14-6. What is the total revenue from selling 4 units?

D. $480

Refer to Figure 14-9. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $2.00?

D. 60,000

When a tax is levied on sellers of tea,

D. both sellers and buyers of tea are made worse off.

Many economists believe that

D. workers and customers bear much of the burden of the corporate income tax.

Refer to Figure 14-1. If the market price is $6.30, the firm will earn

D. zero economic profits in the short run

Demand is inelastic if the price elasticity of demand is greater than 1.

False

Producer surplus is the cost of production minus the amount a seller is paid.

False

A decrease in supply shifts the supply curve to the left.

True

When the market price is below the equilibrium price, the quantity of the good demanded exceeds the quantity supplied.

True