ECON Final Exam Review
Suppose executives at an art museum know that 100 adults are willing to pay $12 for admission to the museum on a weekday. Suppose the executives also know that 200 students are willing to pay $8 for admission on a weekday. The cost of operating the museum on a weekday is $2,000. How much profit will the museum earn if it engages in price discrimination? a. $800 b. $1,600 c. $1,200 d. $2,800
a. $800
Larry's Lunchcart is a small street vendor business. If Larry makes 15 pretzels in his first hour of business and incurs a total cost of $16.50, his average total cost per pretzel is a. $1.10 b. $16.50 c. $6.50 d. $15.00
a. $1.10
look at picture Buyers pay how much of the tax per unit? a. $1.50 b. $5.00 c. $3.00 d. $0.50
a. $1.50
Table The only four consumers in a market have the following willingness to pay for a good: If the price is $20 , then consumer surplus in the market is a. $45, and Quilana, Wilbur, Ming-la purchase the good b. $45, and Carlos and Quilana purchase the good c. $20, and Wilbur and Ming-la purchase the good d. $55, and Carlos, Wilbur, and Ming-la purchase the good
a. $45, and Quilana, Wilbur, Ming-la purchase the good
The goal of the consumer is to a. spend more income in the current time period than in the future b. maximize utility c. minimize expenses d. all of the above are the goals of the consumer
b. maximize utility
Sonia opened a yoga studio where she teaches classes and sells yoga clothing. Fixed costs for Sonia's yoga studio include the cost of the (i) tank tops. (ii) wages paid to the other yoga instructors. (iii) lease on the studio space. (iv) insurance that the landlord requires Sonia to carry for the studio. a. (i) and (ii) b. (i) only c. (iii) and (iv) d. (i), (ii), (iii), and (iv)
a. (i) and (ii) only
look at the picture When the price rises from P1 to P2, what area represents the increase in producer surplus? a. A+B b. A c. G d. A+B+C
a. A+B
look at the picture Which area represents the deadweight loss from monopoly? a. J+H b. H c. J d. A+B+C+D+F+I+J+H
a. J+H
Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that a. Jenny pays abe $300 to give the dog to his parents who live on an isolated farm b. abe pays Jenny $350 for her inconvenience c. Jenny pays abe $150 to give the dog to his parents who live on an isolated farm d. There is no private transaction that would improve this situation
a. Jenny pays abe $300 to give the dog to his parents who live on an isolated farm
Assume Leo buys coffee beans in a competitive market. It follows that a. Leo cannot influence the price of coffee beans even if he buys a large quantity of them b. Leo has a limited number of sellers from which to buy coffee beans c. Leo will negotiate with sellers whenever he buys coffee beans d. None of the above are correct
a. Leo cannot influence the price of coffee beans even if he buys a large quantity of them
Which of the following examples illustrates an oligopoly market? a. a city with two firms who are licensed to sell school uniforms for the local schools b. a farmers market with many individuals selling sweet corn and tomatoes c. a city with many independently owned hair styling salons d. a city whose electrical service is provided by one electric co-operative
a. a city with two firms who are licensed to sell school uniforms for the local schools
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 a. an apple costs twice as much as a light bulb b. the opportunity cost of an apple is one-half of a light bulb c. the opportunity cost of a light bulb is 2 apples d. all of the above are correct
a. an apple costs twice as much as a light bulb
If a shortage exists in a market, then we know that the actual price is a. below the equilibrium price, and quantity demanded is greater than quantity supplied b. above the equilibrium price, and quantity supplied is greater than quantity demanded c. above the equilibrium price, and quantity demanded is greater than quantity supplied d. below the equilibrium price, and quantity supplied is greater than quantity demanded
a. below the equilibrium price, and quantity demanded is greater than quantity supplies
Consider the market for portable air conditioners in equilibrium. A summer of unseasonably cool weather would cause a. both the equilibrium price and quantity to decrease b. the equilibrium price to increase and the equilibrium quantity to decrease c. both the equilibrium price and quantity to increase d. the equilibrium price to decrease and the equilibrium quantity to increase
a. both the equilibrium price and quantity to decrease
If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' incomes rise? a. both the equilibrium price and quantity would decrease b. the equilibrium price would increase, and the equilibrium quantity would decrease c. the equilibrium pice would decrease, and the equilibrium quantity would increase d. both the equilibrium price and quantity would increase
a. both the equilibrium price and quantity would decrease
Which of the following is not a reason for the existence of a monopoly? a. diseconomies of scale b. copyrights c. sole ownership of a key resource d. patents
a. diseconomies of scale
Once tradable pollution permits have been allocated to firms, a. firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits b. the value of pollution-saving technology will be lower than the market value of a pollution permit c. the coast theorem is no longer applicable as a solution to reducing pollution d. the government controls the price of permits
a. firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits
Which of the following statements best reflects a price taking firm? a. if the firm were to charge more than the going price, it would sell none of its good b. price taking firms maximize profits be charging a price above the marginal cost c. the firm can sell only a limited amount of output at the market price before the market price will fall d. the firm has an incentive to charge less than the market price to earn higher revenue.
a. if the firm were to charge more than the going price, it would sell none of its good
When there is a technological advance in the pork industry, consumer surplus in that market will a. increase b. decrease c. not change, since technology affects producers and not consumers d. not change, since consumers willingness to pay is unaffected by the technological advance
a. increase
If the demand for donuts is elastic, then a decrease in the price of donuts will a. increase total revenue of donut sellers b. decrease total revenue of donut sellers c. there is not enough information to answer this question d. not change total revenue of donut sellers
a. increase total revenue of donut sellers
A perfectly competitive firm produces where a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost b. marginal cost exceeds price, while a monopolist produces where marginal cost equals price c. price exceeds marginal cost, while a monopolist produces where marginal cost equals price d. marginal cost equals price, while a monopolist produces where marginal cost exceeds price
a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost
Look at picture Which of the following movements would illustrate the effect in the market for convertible automobiles of an increase in the price of steel? a. point c to point d b. point a to point d c. point a to point b d. point c to point b
a. point c to point d
After the patent runs out on a brand name drug, generic drugs enter the market. What happens next in the market? a. price decreases, and total surplus increases b. price decreases, and total surplus decreases c. price increases, and total surplus increases d. price increases, and total surplus decreases
a. price decreases, and Total surplus increases
A consumer maximizes utility when she consumes at a point where a. the marginal utility per dollar spent on each good is the same b. the price of each good is the same c. the marginal utility of each good is the same d. all of the above statements are true
a. the marginal utility per dollar spent on each good is the same
An example of a price floor is a. the minimum wage b. rent control c. any restriction on price that leads to a shortage d. the regulation of gasoline prices in the US in the 1970s
a. the minimum wage
Which of the following events could cause an increase in the supply of ceiling fans? a. the number of sellers of veiling fans increases b. there is an increase in the price of the motor that powers ceiling fans c. There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitiues d. all of the above are correct
a. the number of sellers of ceiling fans increases
Suppose the nation of Kenistonia has a tax system in which individuals pay a marginal tax of 10% on all income between $0 and $50,000, then a marginal tax of 25% on all income above $50,000. You live in Kenistonia, and last year you earned $90,000. It is now tax day-- what is your total tax bill? a. $19,000 b. $15,000 c. $9,000 d. $22,500
b. $15,000
When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $10 it sells 60 units. The marginal revenue for the firm over this range is a. $44 b. $22 c. $11 d. $33
b. $22
look at picture Suppose the government places a $5 per-unit tax on this good. The amount of deadweight loss resulting from this tax is a. $120 b. $25 c. $50 d. $80
b. $25
look at picture In the after-tax equilibrium, how much revenue does the government collect from the tax on this good? a. $345 b. $420 c. $480 d. $210
b. $420
Consider a profit-maximizing monopoly pricing under the following conditions. The profit-maximizing price charged for goods produced is $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. The socially efficient level of production is 12 units. The demand curve and marginal cost curves are linear. What is the value of the deadweight loss created by the monopolist? a. $12 b. $6 c. $4 d. $16
b. $6
look at the picture The firm will earn zero economic profit if the market price is a. $0 b. $6 c. $7 d. $10
b. $6
Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high. a. (i) and (iii) b. (i) and (ii) c. (i) only d. (ii) and (iii)
b. (i) and (ii)
look at picture In order to maximize profits, the monopolist should produce a. 9 units b. 12 units c. 15 units d. more than 15 units
b. 12 units
Economies of scale occur when a firm's a. long run average total costs are increasing as output increases b. long run average total costs are decreasing as output increases c. marginal costs are equal to average total costs for all levels of output d. marginal costs are constant as output increases
b. Long run average total costs are decreasing as output increases
Look at picture Which of the following would cause the supply curve to shift from supply a to supply c in the market for sail boats? a. a decrease in the price of americas cup sailing t shirts b. a decrease in the price of fiberglass and sail cloth c. a decrease in the number of firms selling sailboats d. an increase in the price of sailboats
b. a decrease in the price of fiberglass and sail cloth
Which of the following is NOT an example of a negative externality? a. air pollution from a manufacturing plant b. a decrease in your property value from neglecting your lawn and garden c. an illness caused by secondhand cigarette smoke d. disrupted sleep from a neighbor's loud music
b. a decrease in your property value from neglecting your lawn and garden
which of the following goods is not excludable and not rival in consumption? a. tickets to a professional basketball game b. a tornado siren c. fish in the ocean d. a premium television channel
b. a tornado siren
look at picture Suppose that a firm in a competitive market has the following cost curves The firm will earn a positive economic profit in the short run if the market price is a. less than $4.50 b. above $6.30 c. less than $6.30 but more than $4.50 d. exactly $6.30
b. above $6.30
look at the picture How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome? a. an amount equal to P b. an amount equal to the external cost c. an amount to equal to P' d. an amount equal to P' minus P
b. an amount equal to the external cost
If Franco's Pizza Parlor knows that the marginal cost of the 500th pizza is $3.50 and that the average total cost of making 499 pizzas is $3.30, then a. average variable costs must be falling b. average total costs are rising at Q=500 c. average total costs are falling at Q=500 d. total costs are falling at Q=500
b. average total costs rises at Q=500
A group of firms that act in unison to maximize collective profits is called a a. Nash equilibrium market b. cartel c. monopoly d. monopolistically competitive industry
b. cartel
A monopolistically competitive market is characterized by a. free entry b. differentiated products, but not long run profits c. long run profits, but not many firms d. many firms, but not free entry
b. differentiated products, but not Long run profits
A tax imposed on the buyers of a good will lower the a. price paid by buyers and lower the equilibrium quantity b. effective price received by sellers and lower the equilibrium quantity c. effective price received by sellers and raise the equilibrium quantity d. price paid by buyers and raise the equilibrium quantity
b. effective price received by sellers and lower the equilibrium quantity
Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market? a. equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous b. equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous c. equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous d. equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous
b. equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous
A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will a. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. b. 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. c. not fall in the short run because firms will exit to maintain the price. d. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
b. 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
Which of the following is correct? A tax burden a. falls more heavily on the side of the market that is more elastic b. falls more heavily on the side of the market that is less elastic c. falls more heavily on the side of the market that is closest to unit elastic d. is distributed independently of the relative elasticities of supply and demand
b. falls more heavily on the side of the market that is less elastic
If textbooks and study guides are complements, then an increase in the price of textbooks will result in a. more study guides being sold b. fewer study guides being sold c. more textbooks being sold d. no difference in the quantity sold of either good
b. fewer study guides being sold
Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will a. increase, and producer surplus in the industry will decrease b. increase, and producer surplus in the industry will increase c. decrease, and producer surplus in the industry will increase d. decrease, and producer surplus in the industry will decrease
b. increase, and producer surplus in the industry will increase
look at the picture The price ceiling a. causes a shortage of 45 units of the good b. makes it necessary for sellers to ration the good c. is not binding because it is set below the equilibrium price d. causes a shortage of 40 units of the good
b. makes it necessary for sellers to ration the good
look at the picture If the market price is $10, what is the firm's total revenue a. $15 b. $35 c. $50 d. $30
c. $50
look at table If the firm is producing 3 units of output, it should produce a. more units of output because its marginal revenue is less than its marginal cost b. more units of output because its marginal revenue is greater than its marginal cost c. fewer units of output because its marginal revenue is greater than its marginal cost d. fewer units of output because its marginal revenue is less than its marginal cost
b. more units of output because its marginal revenue is greater than its marginal cost
Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect a. the distribution of tax burden between buyers and sellers of cigarettes to depend on whether buyers or sellers of cigarettes are required to pay the tax to the government b. most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government c. most of the burden of the tax to fall on sellers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government d. a large percentage of smokers to quit smoking in response to the tax
b. most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government
A rain barrel is a container that captures and stores rainwater from landscape and garden use during dry periods. Rain barrels provide and external benefit to the community through water conversation. What can the government do to equate the equilibrium quantity of rain barrels and the socially optimal quantity of rain barrels? a. impose a tax on rain barrels that is equal to the per unit externality b. offer a subsidy on rain barrels that is equal to the per unit externality c. encourage home owners to bargain with rain barrel producers d. nothing
b. offer a subsidy on rain barrels that is equal to the per units externality
A good is excludable if a. it is not a normal good b. people can be prevented from using it c. the government can regulate its availability d. one person's use of the good diminishes another person's enjoyment of it
b. people can be prevented from using it
Markets do not ensure that the air we breathe is clean because a. the government prevents markets from doing so b. property rights are not well established for clean air c. clean air has no value d. clean air is impossible to produce
b. property rights are not well established for clean air
The deadweight loss that arises from a monopoly is a consequence of the fact that the monopoly a. price is the same as average revenue b. quantity is lower than the socially-optimal quantity c. price equals marginal revenue d. earns positive profits
b. quantity is lower than the socially-optimal quantity
If there is a shortage of farm laborers, we would expect a. the price of farm commodities to decrease b. the wage of farm laborers to increase c. a decrease in the demand for substitutes for farm labor d. the wage of farm laborers to decrease
b. the wage of farm laborers to increase
Consumer surplus is equal to the a. amount paid by buyers-costs of sellers b. value of buyers-amount paid by buyers c. value to buyers-costs of sellers d. value to buyers-willingness to pay of buyers
b. value of buyers-amount paid by buyers
An example of a perfectly competitive market would be the market for a. pizza b. wheat c. garbage collection d. tennis racquets
b. wheat
Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost during the year totaled $85,000. What is Tom's economic profit for his first year in business? a. $20,000 b. $85,000 c. $0 d. $65,000
c. $0
look at table Two home improvement stores in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits of the two home improvement stores are shown in the table below. If both stores follow a dominant strategy, Lope's annual profit will grow by a. $3.2 million b. $0.4 million c. $1.0 million d. $2.0 million
c. $1.0 million
look at picture This graph represents the tobacco industry. The socially optimal price and quantity are a. $1.90 and 38 units, respectively b. $1.60 and 42 units, respectively c. $1.80 and 35 units, respectively d. $1.35 and 58 units, respectively
c. $1.80 and 35 units, respectively
look at the picture Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on sellers is a. $2 b. $5 c. $3 d. $1
c. $3
Hilda's Hair Hysteria 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 Hilda's Hair Hysteria is a. 0.33 b. 7.98 c. 1.14 d. 0.88
c. 1.14
Riva crafts and sells hard cider as a part-time job. She can bottle and sell four cases in a week. She is considering hiring her friend Atul to help her. Together, Riva and Atul can bottle and sell seven cases per week. What is Atul's marginal product? a. 7 cases b. 2 cases c. 3 cases d. 5 cases
c. 3 cases
look at the table If a monopolist faces a constant marginal cost of $5, how much output should the firm produce in order to equate marginal revenue with marginal cost? a. 3 units b. 5 units c. 4 units d. 6 units
c. 4 units
look at the picture When the price falls from P1 to P2 , which area represents the increase in consumer surplus to new buyers entering the market? a. BDF b. BCGD c. ABC d. AFG
c. ABC
The consumer's optimum is where a. MUx/MUy=Py/Px b. MUx/Py=MUy/Px c. MUx/MUy=Px/Py d. none of the above are correct
c. MUx/MUy=Px/Py
Which of the following changes would not shift the supply curve for a good or service? a. a change in expectations about the future price of the good or service b. a change in input prices c. a change in the price of the good or service d. a change in production technology
c. a change in the price of the good or service
The following diagram shows two dugout lines: A and B Which of the following could explain the change in the budget line from A to B? a. an increase in the price of Y b. a decrease in the price of X c. a decrease in the price of Y d. More than one of the above could explain this change
c. a decrease in the price of Y
When two goods are perfect complements, the indifference curve is a. a horizontal straight line b. a downward-sloping straight line c. a right angle d. bowed outward
c. a right angle
Suppose you make jewelry. If the price of gold falls, then we would expect you to a. be willing and able to produce less jewelry than before at each possible price b. face a weaker demand for your jewelry c. be willing and able to produce more jewelry than before at each possible price d. face a greater demand for your jewelry
c. be willing and able to produce more jewelry than before at each possible price
The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing a. economies of scale b. diseconomies of scale c. constant returns of scale d. negative profits
c. constant returns of scale
Deadweight loss is the a. decline in government revenue when taxes are reduced in a market b. loss of profits to business firms when a tax is imposed c. decline in total surplus that results from a tax d. decline in consumer surplus when a tax is placed on buyers
c. decline in total surplus that results from a tax
which of the following events must cause equilibrium quantity to rise? a. demand decreases and supply increases b. demand increases and supply decreases c. demand and supply both increase d. demand and supply both decrease
c. demand and supply both increase
Suppose that monopolistically competitive firms in a certain market are earning positive profits. In the transition from this initial situation to a long run equilibrium a. the number of firms in the market decreases b. each existing firm experiences a rightward shift of its marginal revenue curve c. each existing firm experiences a decrease in demand for its product d. each existing firm experiences an upward shift in its average total cost curve
c. each existing firm experiences a decrease in demand for its product
Recent forest fires in the western states are expected to cause the price of lumber to rise in the next six months. As a result, we can expect the supply of lumber to a. increase in six months when the pice goes up b. fall in six months but not now c. fall now d. increase now to meet as much demand as possible
c. fall now
If a competitive market the current price is $5. The typical firm in the market has ATC=$5.50 and AVC=$4.50 a. The firm will earn zero profits in both the short run and long run b. new firms will likely enter this market to capture any remaining economic profits c. In the short run firms will continue to operate, but in the long run firms will leave the market d. in the short run firms will shut down, and in th
c. in the short run firms will continue to operate, but in the long run firms will leave the market
If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would a. increase by more than $5 b. increase by exactly $5 c. increase by less than $5 d. decrease by an indeterminate amount
c. increase by less than $5
look at picture In this marker for watermelons, a severe drought occurs which affects the watermelon crop. The equilibrium price a. and quantity both increase b. and quantity both decrease c. increases and the equilibrium quantity decreases d. decreases and the equilibrium quantity is ambiguous
c. increases and the equilibrium quantity decreases
The minimum points of the average variable cost and average total cost curves occur where the a. average variable cost and average total cost curves intersect b. slope of total cost is the smallest c. marginal cost curve intersects those curves d. marginal cost curve lies below the average variable cost and average total cost curves
c. marginal cost curve intersect those curves
The US military defends Jacob from foreign attackers. The fact that Jacob enjoys this protection does not detract from others Americans' enjoyment of it. For this reason, we say that national defense is a. rival in consumption b. excludable c. not rival in consumption d. not excludable
c. not rival in consumption
New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages, and automobile insurance becomes more expensive? a. the price change will be ambiguous b. price will stay exactly the same c. price will fall d. price will rise
c. price will fall
Refer to picture At a price of $15, there would be a a. surplus of 400 units b. shortage of 200 units c. shortage of 400 units d. shortage of 600 units
c. shortage of 400 units
Which of these types of costs can be ignored when an individual or a firm is making decisions? a. variable costs b. opportunity costs c. sunk costs d. marginal costs
c. sunk costs
Which of the following is an illustration of the market for original paintings by deceased artist Vincent Van Gogh? a. supply curve vertical and demand curve horizontal b. demand curve vertical and supply curve horizontal c. supply curve vertical and demand curve sloping down d. demand curve is vertical and supply curve is sloping up
c. supply curve vertical and demand curve sloping down
What would happen to the equilibrium price and quantity of lattes if coffee shops began using a machine that reduced the amount of labor necessary to produce steamed milk, which used to make lattes, and scientists discovered that lattes cause heart attacks? a. The equilibrium quantity would decrease, and the effect on equilibrium price would be ambiguous b. both the equilibrium price and quantity would increase c. the equilibrium pice would decrease and the effect on equilibrium quantity would be ambiguous d. both the equilibrium price and quantity would decrease
c. the equilibrium price would decrease and the effect on equilibrium quantity would be ambiguous
look at picture Suppose buyers, rather than sellers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in a. sellers bearing a smaller share of the tax burden b. buyers bearing a larger share of the tax burden c. the same amount of tax revenue for the government d. both a and b are correct
c. the same amount of tax revenue for the government
look at the picture If the consumer moves from bundle V to bundle X, the a. total utility remains constant b. marginal rate of substitution c. total utility increases d. both a) and b) are correct
c. total utility increases
Total surplus is equal to a. value to buyers-profit to sellers b. consumer surplus x producer surplus c. value to buyers-cost to sellers d. (consumer surplus + producer surplus) x equilibrium quantity
c. value to buyers-cost to sellers
For which of the following goods is the income elasticity of demand likely lowest? a. fresh fruit b. sapphire pendant necklaces c. water d. filet mignon steaks
c. water
look at same picture A profit maximizing monopolist would earn profits for a. $126 b. $117 c. $96 d. $120
d. $120
look at same picture In order to maximize profits, the monopolist should charge a price of a. $12 b. $9 c. $23 d. $20
d. $20
look at picture the downward-sloping line on the figure represents a consumers budget constraint. If the price of a CD is $12, then the consumers income amounts to a. $180 b. $210 c. $140 d. $240
d. $240
Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The deadweight loss of the tax is a. $200 b. $1,200 c. $400 d. $600
d. $600
look at the table A monopolistically competitive firm faces the following demand schedule for its product: The firm has total fixed costs of $9 and a constant marginal cost of $3 per unit. The firm will maximize profit with a. 21 units of output b. 30 units of output c. 9 units of output d. 15 units of output
d. 15 units of output
Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for gorilla chips in the given price range is a. 0.33 b. 3.00 c. 0.45 d. 2.20
d. 2.20
look at picture Using the midpoint method, the price elasticity of demand between point X and point Y is a. 0.4 b. 1 c. 2 d. 2.5
d. 2.5
look at the picture Suppose a tax of $6 per unit is imposed on this market. What will be the new equilibrium quantity in this market? a. between 20 units and 35 units b. greater than 35 units c. less than 20 units d. 20 units
d. 20 units
Taxes cause deadweight losses because taxes a. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall b. prevent buyers and sellers from realizing some of the gains from trade c. reduce the sum of proper and consumer surpluses by more than the amount of tax revenue d. all of the above are correct
d. all of the above are correct
Which of the following is not an example of price discrimination? a. a local pizza chain offers a "buy three per one free" deal b. a university rebates part of the cost of tuition in the form of financial aid for needy students c. a movie theater charges a lower price for a child's ticket than for an adult's ticket d. an ice cream parlor charges a higher price for ice cream than for sherbet
d. an ice cream parlor charges a higher price for ice cream than for sherbet
Suppose that the demand for light bulbs is inelastic, and the supply of light bulbs is elastic. A tax of $2 per bulb levied on light bulbs will increase the price paid by buyers of light bulbs by a. less than $1 b. $1 c. $2 d. between $1 and $2
d. between $1 and $2
Billie spends all of her income on soccer balls and jeans, and the price of a pair of jeans is three times the price of soccer balls. In order to maximize total utility, Billie should a. buy three times as many soccer balls as pairs of jeans b. buy both items until the marginal utility of soccer balls is three times the marginal utility of a pair of jeans c. buy three times as many pairs of jeans as soccer balls d. buy both items until the marginal utility of a pair of jeans is three times the marginal utility of soccer balls
d. buy both items until the marginal utility of a pair of jeans is three times the marginal utility of soccer balls
The demand for chicken wings is more elastic than the demand for razor blades. Suppose the government levies an equivalent tax on chicken wings and razor blades. The deadweight loss would be larger in the market for a. razor blades than in the market for chicken wings because the quantity of chicken wings would fall by more than the quantity of razor blades b. razor blades than in the market for chicken wings because the quantity of razor blades would fall by more than the quantity of chicken wings c. chicken wings than in the market for razor blades because the quantity of razor blades would fall by more than the quantity of chicken wings d. chicken wings than in the market for razor blades because the quantity of chicken wings would fall by more than the quantity of razor blades
d. chicken wings than in the market for razor blades because the quantity of chicken wings would fall by more than the quantity of razor blades
Most studies indicate that alcohol and marijuana tend to be a. unrelated because one good is legal while the other one is illegal b. inferior goods c. substitutes d. complements
d. complements
The demand for grape-flavored Hubba Bubba bubble gum is likely a. inelastic because there are many close substitutes for grape flavored Hubba Bubba. b. elastic because the market is broadly defined c. inelastic because the market is broadly defined d. elastic because there are many close substitutes for grape flavored Hubba Bubba
d. elastic because there are many close substitutes for grape flavored Hubba Bubba
Opponents of alcohol taxes often argue that liquor and marijuana are substitutes so that high liquor prices a. discourage marijuana use, and the evidence supports this argument b. discourage marijuana use, but the evidence does not support this argument c. encourage marijuana use, and the evidence supports this argument d. encourage marijuana use, but the evidence does not support this argument
d. encourage marijuana use, but the evidence does not support this argument
Drug companies are allowed to be monopolists in the drugs they discover in order to a. allow drug companies to charge a price that is equal to their marginal cost b. allow the government to earn patent revenue c. discourage new firms from entering the drug market d. encourage research
d. encourage research
If the labor supply curve is nearly vertical, a tax on labor a. raises a small amount of tax revenue b. results in a large tax burden on the firms that hire labor c. has a large deadweight loss d. has little impact on the amount of work that workers are willing to do
d. has little impact on the amount of work that workers are willing to do
The movement from Da to Db in the market for potato chips could be caused by an a. announcement by the FDA that potato chips cause cancer b. decrease in income, assuming that potato chips are a normal good c. decrease in the price of potato chips d. increase in the price of pretzels
d. increase in the price of pretzels
Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's a. total revenues equal his total economic costs b. marginal cost exceeds his marginal revenue c. marginal revenue exceeds his total cost d. marginal revenue exceeds his marginal cost
d. marginal revenue exceeds his marginal cost
The reason to regulate utilizes instead of using antirust laws to promote competition is that a utility is usually a a. revenue maximizing monopoly b. profit maximizing monopoly c. producer externalities d. natural monopoly
d. natural monopoly
If Max experiences a decrease in his income, then we would expect Max's demand for a. each good he purchases to remain unchanged b. inferior goods to decrease c. luxury goods to increase d. normal goods to decrease
d. normal goods to decrease
If the government removes $1 tax on sellers of gasoline and imposes the same $1 tax on buyers of gasoline, then the price paid by buyers will a. not change, and the price received by sellers will increase b. increase, and the price received by sellers will not change c. increase, and the price received by sellers will increase d. not change, and the price received by sellers will not change
d. not change, and the price received by sellers will not change
Most lighthouses are operated by the government because a. shipping companies would not be able to afford maintenance fees for lighthouses b. most lighthouses are only tourist attractions in state and national parks c. lighthouses are no longer valued by society d. of the free rider problem
d. of the free rider problem
Which of the following industries is least likely to exhibit the characteristics of free entry? a. bookstores b. yoga studies c. hairstyling salons d. satellite radio
d. satellite radio
A decrease in income will cause a consumers budget constraint to a. pivot along the horizontal axis b. pivot along the vertical axis c. shift outward, parallel to its initial position d. shift inward, parallel to its initial position
d. shift inward, parallel to its initial position
The ogallala aquifer is a large underground pool of fresh water under several western states in the Unites States. Any farmer with land above the aquifer can at present pump water out of it. Which of the following statements about the aquifer if correct? a. The aquifer is a club good which should be left as it is b. The aquifer is a private good which must be privately owned to be used efficiently c. The aquifer is a public good which must be publicly owned to be used efficiently d. The aquifer is a common resource which will be overused if no one owns it
d. the aquifer is a common resource which will be overused if no one owns it
Without government intervention, public goods tend to be a. overproduced and common resources tend to be over-consumed b. underproduce and common resources tend to be under consumed c. overproduced and common resources tend to be under consumed d. underproduced and common resources tend to be overconsumed
d. under produced and common resources tend to be over consumed
