Econ FInal Exam

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a Select one: a. 20 percent decrease in the quantity demanded. b. 40 percent decrease in the quantity demanded. c. 5 percent decrease in the quantity demanded. d. 0.2 percent decrease in the quantity demanded.

a. 20 percent decrease in the quantity demanded.

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it Select one: a. can prevent children from buying the lower-priced tickets and selling them to adults. b. has no monopoly pricing power. c. only shows G-rated movies. d. cannot easily distinguish between the two groups of customers.

a. can prevent children from buying the lower-priced tickets and selling them to adults.

An example of an explicit cost of production would be the Select one: a. lease payments for the land on which a firm's factory stands. b. value of the time the business could've spent producing something else. c. cost of forgone labor earnings for an entrepreneur. d. lost opportunity to invest in capital markets when the money is invested in one's business.

a. lease payments for the land on which a firm's factory stands.

For a monopoly, the socially efficient level of output occurs where Select one: a. price equals marginal cost. b. price equals average total cost. c. marginal revenue equals marginal cost. d. marginal revenue equals average total cost.

a. price equals marginal cost.

For a good that is a luxury, demand Select one: a. tends to be elastic. b. tends to be inelastic. c. has unit elasticity. d. cannot be represented by a demand curve in the usual way.

a. tends to be elastic.

If a price floor is not binding, then Select one: a. the equilibrium price is above the price floor. b. there will be a surplus in the market. c. the equilibrium price is below the price floor. d. there will be a shortage in the market.

a. the equilibrium price is above the price floor.

What happens to consumer surplus in the cell phone market if cell phones are normal goods and buyers of cell phones experience an increase in income? Select one: a. Consumer surplus decreases. b. Consumer surplus may increase, decrease, or remain unchanged. c. Consumer surplus increases. d. Consumer surplus remains unchanged.

b. Consumer surplus may increase, decrease, or remain unchanged.

A tax on the buyers of cameras encourages Select one: a. buyers to demand a larger quantity at every price. b. buyers to demand a smaller quantity at every price. c. sellers to supply a larger quantity at every price. d. sellers to supply a smaller quantity at every price.

b. buyers to demand a smaller quantity at every price.

Private decisions about consumption of common resources and production of public goods usually lead to an Select one: a. efficient allocation of resources and external effects. b. inefficient allocation of resources and no external effects. c. efficient allocation of resources and no external effects. d. inefficient allocation of resources and external effects.

b. inefficient allocation of resources and no external effects.

If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then Select one: a. the firm cannot be a competitive firm because competitive firms cannot earn positive profits. b. its average total cost is less than $10. c. its total cost is more than $9,000. d. its marginal revenue is less than $10.

b. its average total cost is less than $10.

If a sawmill creates too much noise for local residents, Select one: a. noise restrictions will force residents to move out of the area. b. the government can raise economic well-being through noise-control regulations. c. the government should avoid intervening because the market will always allocate resources efficiently. d. a sense of social responsibility will cause owners of the mill to reduce noise levels.

b. the government can raise economic well-being through noise-control regulations.

In some cases, tradable pollution permits may be better than a corrective tax because Select one: a. pollution permits allow for a market solution while a corrective tax does not. b. the government can set a maximum level of pollution using permits. c. pollution permits are never preferred over a corrective tax. d. pollution permits generate more revenue for the government than a corrective tax.

b. the government can set a maximum level of pollution using permits.

Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal Select one: a. $2,000. b. $2. c. $1,000. d. $4.

c. $1,000.

Miguel, Maria, and Marcos all would like a place to sit while waiting at their children's bus stop. The neighborhood association is considering installing several park benches at the bus stop. Miguel values the benches at $20, Maria at $30, and Marcos at $40. The park benches and labor for installation cost $100. If Miguel, Maria, and Marcos are the only residents who value the benches, what should the neighborhood association do? Select one: a. Do not install the park benches to prevent the Tragedy of the Commons problem of overuse. b. Install the park benches because people like places to sit. c. Do not install the park benches because the costs outweigh the benefits. d. Install the park benches because the benefits outweigh the costs.

c. Do not install the park benches because the costs outweigh the benefits.

Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market? Select one: a. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. d. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.

c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

In which of the following market structures can firms earn economic profits in the long run? Select one: a. Monopolistic competition only b. Perfect competition only c. Monopoly only d. Monopolistic competition and monopoly

c. Monopoly only

For which pairs of goods is the cross-price elasticity most likely to be positive? Select one: a. Bicycle frames and bicycle tires b. Peanut butter and jelly c. Pens and pencils d. Digital college textbooks and iPhones

c. Pens and pencils

If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will Select one: a. earn zero economic profits. b. earn economic profits. c. earn economic losses. d. produce a lower quantity of output than is socially optimal.

c. earn economic losses.

If the government removes a binding price ceiling from a market, then the price paid by buyers will Select one: a. decrease, and the quantity sold in the market will increase. b. decrease, and the quantity sold in the market will decrease. c. increase, and the quantity sold in the market will increase. d. increase, and the quantity sold in the market will decrease.

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

A firm that shuts down temporarily has to pay Select one: a. both its variable costs and its fixed costs. b. neither its variable costs nor its fixed costs. c. its fixed costs but not its variable costs. d. its variable costs but not its fixed costs.

c. its fixed costs but not its variable costs.

Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market Select one: a. decreases. b. is unchanged. c. may increase, decrease, or remain unchanged. d. increases.

c. may increase, decrease, or remain unchanged.

Producers have little incentive to produce a public good because Select one: a. the social benefit is less than the private benefit. b. the social benefit is less than the social cost. c. there is a free-rider problem. d. there is a Tragedy of the Commons.

c. there is a free-rider problem.

Equilibrium price must decrease when demand Select one: a. increases and supply does not change, when demand does not change and supply decreases, and when demand decreases and supply increases simultaneously. b. increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously. c. decreases and supply does not change, when demand does not change and supply increases, and when demand increases and supply decreases simultaneously. d. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.

d. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.