Econ 2110 final

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is:

an economic problem because Chris has only one hour, and engaging in one activity means giving up the other

Suppose that in most car collisions between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following question, assume that, on average, smaller cars generate less air pollution than larger cars and that every person in the economy drives at least one car. Relative to driving an average car, driving a larger-than-average car generates:

an external cost.

Refer to the figure above. Suppose that retailers learn that a new Shrek movie will be released next month. That news is likely to cause:

an immediate shift in the supply curve to Supply A in anticipation of increased future prices

The United States was unable to maintain its dominance in the production of televisions because:

automated techniques allowed production to be outsourced to countries with less-skilled workers

For two goods, coffee and scones, suppose that MU(coffee)/P(coffee) = 4 and MU(scones)/P(scones) = 3. To maximize your total utility from these two goods, you should purchase:

more coffee and fewer scones.

Suppose a perfectly competitive firm is producing 77 units of output, and the marginal cost of the 77th unit is 11. If the firm can sell each unit of output for $8 and the firm's revenue is sufficient to cover its variable cost, the firm should:

decrease production.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. picture The firm depicted in the graph on the right faces a demand curve that is:

horizontal at the market price.

Suppose Colin brews beer and makes cheese. If Colin can increase his production of beer without decreasing his production of cheese, then he is producing at an:

inefficient point

A fixed factor of production:

is fixed only in the short run.

If a production process exhibits diminishing returns, then as output rises:

marginal cost will eventually increase.

The monopolist will maximize profits at the output level for which:

marginal revenue equals marginal cost.

Buyers and sellers of a particular good comprise the:

market for the good

Suppose that each serving of Mac & Cheese costs $0.50 to make no matter how many servings are produced. This means that the price elasticity of supply for Mac & Cheese is ______ and the supply curve is ______.

infinite; perfectly elastic

One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that:

positive economic profit is only possible in the short run.

long run equilibrium on graph

where marginal cost and average total cost intersect

Which of the following statements about explicit costs is true?

They appear on the firm's balance sheet.

Suppose Sarah owns a small company that makes wedding cakes. The table below shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. picture The marginal cost if the 4th wedding cake per day is ______.

$100

Pat earns $25,000 per year (after taxes), and Pat's spouse, Chris, earns $35,000 (after taxes). They have two pre-school-aged children. Childcare for their children costs $12,000 per year. Given that Chris doesn't want to stay home with the kids, regardless of what Pat does, Pat should stay home with the kids if, and only if, the value of Pat spending more time with the kids is greater than:

$13,000 per year

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending State NoName U is:

$20000

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed below. picture If Island Bikes charges a single price to all of its customers, then what will be its daily economic profit?

$27

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. picture If the government provides a subsidy of $500 per ton, then the cost of subsidy, which must be borne by taxpayers, will be ______ per day.

$6,000

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell. picture 104 Collectively, the residents of Towneburg would be willing to pay ______ for the 10th shell, and the marginal cost of the 10th shell is ______.

$600; $10

For two goods, A and B, the rational spending rule is expressed as:

(MUA/PA) = (MUB/PB).

formula for the price elasticity of demand at a given point is

(P/Q) × (1/slope)

Refer to the table below. Corey's opportunity cost of making of a pizza is delivering: Picture

1/2 pizza

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. picture In the long run, there will be ______ firms in this market.

10

The figure below shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. picture This monopolist maximizes its profit by producing ______ units per day and charging a price of ______ per unit.

4; $18

Quick Buck and Pushy Sales produce and sell identical products and face zero marginal and average cost. Below is the market demand curve for their product. picture If Quick Buck and Pushy Sales decide to collude and work together as a monopolist, then together they should produce ______ units per month and charge ______ per unit.

2,000; $2

The figure below shows the supply and demand curves for jeans in Smallville. picture At the price of $60 per pair, sellers offer _____ pairs of jeans per day, and buyers wish to purchase ______ pairs of jeans a day.

24; 8

Working efficiently, Jordan can write 3 essays and outline 4 chapters each week. It must be true that:

3 essays and 5 chapter outlines would be unattainable

If the price elasticity of demand for pineapples is 0.75, then a 4% increase in the price of pineapples will lead to a:

3% decrease in the quantity of pineapples demanded

Taylor's marginal utility from watching movies and from eating out (in utils) is shown below. Taylor spends exactly $100 every month on these two forms of entertainment, and the price of each movie is $10 and the price of each dinner is $20. If Taylor watches 2 movies a month, Taylor will eat out ______ times per month, and have marginal utility per dollar of ______ from movies and a marginal utility per dollar of ______ from eating out. picture

4; 5; 5

Refer to the table below. Julia's opportunity cost of making a pie is: (Table on connect)

5/6 cake

Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The table below shows the reservation prices of the eight students enrolled in the class. picture What is the socially optimal number of books?

8

Suppose that the equilibrium price of T-shirts increases and the equilibrium quantity falls. Which of the following best fits the observed data?

A decrease in supply with demand constant

Which of the following is NOT a characteristic of a market in equilibrium?

All consumers are able to purchase an amount equal to their quantity demanded

One thousand adults live in Milltown. Every day, they all leave work at 4:30 p.m., arrive home at exactly 5:00 p.m., and go to bed at 9:00 p.m. Three fundraisers, Alpha, Beta, and Charlie, have targeted Milltown's population. To get a donation, they must call Milltown's residents after they get home from work but before they go to bed. Because the charities raising the funds are identical, the first to call a willing donor will get the donation. Beta's manager has decided that the best time to call is 7:00 p.m. because it is exactly halfway between 5:00 p.m. and bedtime. Which of the following is true?

Beta's manager did not choose wisely.

Hotelling's model has been used to describe differentiation in the political "market." Suppose that 100 voters are evenly distributed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote for the candidate closest to them on this spectrum. The numbers on this spectrum represent the number of voters lying to the left of the number. So, at the midpoint, fifty voters lie to the left and fifty to the right. At the extreme right end, all 100 voters lie to the left. picture 86 If Candidate X is running for office against Candidate Z, then:

Candidate Z will win.

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. Which of the following best explains Casey's career change?

Casey's opportunity costs of gardening exceeded Casey's opportunity costs of working at the bank.

Refer to the figure below. At P = 4, how does the price elasticity of demand for D1 compare to that for D2? picture

It will be lower for D1 than D2.

You have noticed that your next-door neighbor, Mary, always works in the garden, and her husband, Joe, always walks the dog. You conclude that if Joe and Mary are efficient, then it must be the case that:

Joe has a comparative advantage in walking the dog

Suppose that at Miles's current level of consumption, his marginal utility from a pizza is 10 utils, and his marginal utility from a pint of ice cream is 16 utils. If the price of a pizza is $8, and the price of a pint of ice cream is $5, is Miles maximizing his utility?

No. He should shift his spending away from frozen pizza and towards ice cream.

Player 1 and Player 2 are playing a game in which Player 1 has the first move at A in the decision tree shown below. Once Player 1 has chosen either Up or Down, Player 2, who can see what Player 1 has chosen, must choose Up or Down at B or C. Both players know the payoffs at the end of each branch. picture 84 What is the equilibrium outcome of this game?

Player 1 chooses Down and Player 2 chooses Up.

Which of the following investments is part of a positional arms race?

Studying hard for your economics exam because your professor grades on a curve

Which of the following firms is most likely to be a pure monopolist?

The only gas station in a small, isolated town

Which of the following best explains why you are more likely to see a poor person than a wealthy person picking up aluminum cans to sell?

The opportunity cost of picking up cans is higher for wealthy people than for poor people.

Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar; nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Is it socially optimal for the cigar smoker to smoke?

Yes, because the value to the cigar smoker of smoking is greater than the total value to the other people in the room of clean air.

You want to buy a TV that regularly costs $250. You can either buy the TV from a nearby store or from a store that's downtown. Relative to going to the nearby store, driving downtown involves additional time and gas. The downtown store, however, has a 10% off sale this week. Last week you drove downtown to save $20 on some concert tickets, a 15% savings. Should you drive downtown to buy the TV?

Yes, because you will save more than $20

A movement along a demand curve from one price-quantity combination to another is called:

a change in quantity demanded

If crude oil is a variable factor of production for a firm, then an increase in the price of crude oil will lead to:

a decrease in the firm's supply.

Minimum wage laws are an example of:

a regulated price

If a nation can produce more computers per year than any other nation, that nation has a(n) ______ advantage in the production of computers

absolute

If the government needs to raise revenue to pay for a public good, the ideal tax structure would tax

all citizens in proportion to their willingness to pay for the public good.

The negative effect of a tax on the economic surplus of participants in a market should:

be weighed against the potential benefits of the public goods financed by the tax.

Satellite TV is a close substitute for cable TV. In the 1990's, small satellite TV units were developed that made it less costly for individual consumers to subscribe to satellite TV service. This caused the price elasticity of demand for cable TV service to:

become more elastic

Relative to a world in which some people are motivated by nonmaterial incentives, if all people were motivated solely by financial incentives, then:

both business transactions and personal interactions would be different.

The table below shows how the payoffs to two political candidates depend on whether the candidates run a positive or negative campaign. The payoffs are given in terms of the percentage change in the number of votes received. picture 82 In the Nash equilibrium of this game:

both candidates run negative campaigns.

The table below shows how the payoffs to two political candidates depend on whether the candidates run a positive or negative campaign. The payoffs are given in terms of the percentage change in the number of votes received. picture 83 Suppose that the Republican candidate tells the Democratic candidate that he intends to run a positive campaign. The likely result is that:

both candidates will run a negative campaign.

Refer to the table below. According to the table, Julia has the absolute advantage (Table on connect)

both pies and cakes

A good or service that is rival but nonexcludable is called a ______, and a good or service that is nonrival but excludable is called a ______.

commons good; collective good

Some people oppose deficit spending because it:

crowds out private investment.

Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar; nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Declaring the card room a non-smoking area with no opportunity to negotiate would:

decrease total economic surplus.

The most appropriate level of government to provide public goods is:

dependent on the specific public good in question.

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. The residents of Dry Gulch will overuse water relative to the social optimum because ______.

each resident will fail to adequately consider the external cost of his or her own water use

If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are:

earning a normal profit.

A natural monopoly is a monopoly that arises from:

economies of scale

If consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be:

elastic

If the absolute value of the slope of the demand curve is 0.25, price is $8 per unit, and quantity demanded is 12 units, then demand for this good is:

elastic

A perfectly price discriminating monopolist charges each buyer:

exactly his or her reservation price.

Refer to the figure above. Suppose the coffee lobby convinced the legislature to impose a price control requiring that coffee prices must be at least $2.50, and that the original demand curve and original supply curve were applicable. The most likely result would be:

excess supply of coffee that would not correct itself because price is set by law

It takes many years to train to become an orthopedic surgeon. This suggests that, in the short run, a sudden increase in the demand for orthopedic surgeons will:

have little effect on the number of trained orthopedic surgeons.

If all taxpayers pay the same dollar amount, the tax is termed a:

head tax.

Total economic surplus will be ______ in nations with well-defined property rights than in nations with poorly-defined property rights.

higher

A perfectly price discriminating monopolist's profit is ______ the profit of a monopolist who charges the same price to all of its customers.

higher than

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should:

increase output until marginal revenue equals marginal cost.

Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Suppose that demand for diesel fuel is perfectly inelastic and supply has a positive slope. The effect of the regulation will _______ than if demand were not perfectly inelastic.

increase price by more and reduce quantity by less

Refer to the figure below. If Laura and Chris are the only two consumers in this market, then when the price of hamburger decreases from $2.50 to $2.00 per pound, the quantity demanded in the market will ______ by ______ pound(s) per week.

increase; 1.5

Refer to the figure below. When Jeff goes from watching 3 to 4 movies a day, his total utility: picture

increases (jeffs marginal utility from the 4th movie is positive so increase)

Relative to a monopoly charging a single price to all consumers, perfect price discrimination ______ producer surplus and ______ consumer surplus.

increases; decreases

The Cost-Benefit Principle indicates that an action should be taken if:

its extra benefit is greater than or equal to its extra cost

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ______ utility from eating the fourth pie than from eating the second pie.

less

The current U.S. income tax system requires taxpayers to pay a higher marginal tax rate on higher levels of taxable income. Suppose that the tax rate is 10% on the first $15,000 of taxable income, 15% on the next $45,000 of taxable income, 30% on the next $60,000 of taxable income, and 35% on taxable income above $120,000. Suppose the tax code also includes provisions that allow taxpayers to reduce the income on which they are taxed, and that those provisions most often apply to the richest taxpayers. These provisions tend to make the tax code:

less progressive.

If Terry's total utility is maximized when he owns 10 pairs of shoes, then Terry's total utility from owning 7 pairs of shoes is ______ Terry's total utility from owning 8 pairs.

less than

Suppose you have one hour to catch a flight to Miami for spring break, and it takes 45 minutes to drive to the airport. Your car is almost out of gas and the price of gas at the closest gas station is higher than at other gas stations that are much farther away. To you, the price elasticity of demand for gas is likely to be ______ than it would be if you had several hours before the flight.

lower

If you were to start your own business, your implicit costs would include the:

opportunity cost of the time you spend working at the business.

Production possibilities curves for large economies are generally bow-shaped because:

opportunity costs tend to increase with increases in production

Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One must conclude that:

peanut butter and jelly are substitutes

The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves. picture In the long run equilibrium in this market:

price will equal $5, and there will be 20 firms in the industry.

A good or service that is highly nonrival and highly nonexcludable is a(n) ______ good.

pure public

If a perfectly competitive firm produces an output level at which price is less than marginal costs, then the firm should:

reduce output to earn greater profits or smaller losses.

The goal of utility maximization is to allocate your ______ in order to maximize your ______.

resources; satisfaction

A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving. This policy will lead to a relatively ______ reduction in driving if demand is ______.

small; relatively inelastic

Earth Movers & Shakers operates 3 iron ore mines. The table below shows each mine's total daily production and the current number of miners at each mine. All miners work for the same wage, and each miner in any given mine produces the same number of tons per day as every other miner in that mine. table Suppose Earth Movers & Shakers needs to fill an order for 100 tons of ore in a single day. If it has no other orders to fill that day, and it's not possible to transfer miners from one mine to another, it should:

take 75 tons from Middle Drift and 25 tons from Mother Lode

Explicit costs

the actual payments a firm makes to its factors of production and other suppliers, and so would show up on a firm's balance sheet.

When a market is not in equilibrium:

the economic motives of sellers and buyers will move the market to its equilibrium

When more firms enter an industry:

the industry supply curve will shift right.

The tendency for marginal utility to decline as consumption increases beyond some point is called:

the law of diminishing marginal utility

You read online that, at current rates of production, the yearly world supply of food is sufficient to feed the projected 2050 population of earth, but that after 2050 there will be massive starvation. This prediction appears to assume that:

the long-run supply of food is perfectly inelastic.

The opportunity cost of an activity includes the value of:

the next-best alternative that must be foregone

Implicit costs

the opportunity costs of the resources supplied by the owner of the firm.

The price elasticity of supply at a point is:

the percentage change in quantity supplied divided by the percentage change in price.

The dilemma in a prisoner's dilemma is that:

the players would be better off if they both played a dominated strategy.

Logrolling refers to:

the practice whereby legislators support each other's pork barrel spending.

The figure below shows the supply and demand curves for jeans in Smallville. picture The equilibrium price will NOT lead to the largest possible total economic surplus if:

the production of jeans generates air pollution.

at any price the supply curve tells ...

the quantity sellers wish to sell

at any price the demand curve tells ...

the quantity that buyers wish to buy

If the market equilibrium quantity is greater than the socially optimal quantity, one can infer that:

there is a negative externality associated with this good.

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus

wash clothes; bigger

Miniville is an isolated town located on the southern shore of Lake Condescending, a very large lake. The western edge of Miniville is adjacent to impassable mountains and there are no towns or businesses for many miles to the east. The 300 residents of Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the mountains. Lake Shore Drive, the only street in town, provides access to Miniville's homes and businesses. All residents live between the lake and the street; businesses locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive, respectively. All residents of Miniville shop at the store located closest to their homes. picture 87 Because all residents of Miniville shop at the store located closest to their homes, the optimal location for the first store to open in Miniville is:

there is no single optimal location for the first store.

In the Nash equilibrium of a prisoner's dilemma:

there is unrealized opportunity for both to gain.

Individual supply curves generally slope ______ because ______.

upward; of increasing opportunity costs

The following payoff matrix shows the outcomes for the Unites States and Russia from relying on conventional weapons versus atomic weapons in a military conflict. The percentages refer to the fraction of the population that would die. picture 98 This situation above illustrates a positional externality because:

using atomic weapons improves each country's outcome but hurts the other country.

Assume that Joe is willing to produce another hamburger that costs $1 to make. Mary is hungry and is willing to buy a hamburger for $3. According to the No Cash on the Table Principle, Joe and Mary.

will make a trade

scarcity principle

with limited resources, having more of one thing means having less of another