Econ Finals

The market price for Good X is $10.75, and every time Good X is consumed it creates an external benefit of $3.00. Therefore, which statement is correct?

The social benefit of Good X is $13.75, a justification for the government to give buyers a $3.00 subsidy.

The more elastic side of the market will pay and the less elastic side of the market will pay

a smaller share of the tax and a greater share of the tax

When the government taxes ac activity, resources such as labor, machines, and bank lending will tend to gravitate AWAY FROM the activity that is taxed and will tend to gravitate TOWARD activity that is not taxed

away from; toward

Economic theory suggests that college graduates receive higher wages than those with only a high school education because:

college graduates are more productive.

A sales manager at a car dealership revealed that he considers how much the customer appears to know about the car when he's negotiating a price. Ignorant people tend to pay a premium on their car. Price discrimination explains this "ignorance premium" since people who:

don't bother to research are probably less sensitive to price.

An industry is said to be perfectly competitive when:

each firm has virtually no influence over the price of its product.

A firm is willing to hire a worker when the marginal product of labor is:

greater than the wage.

If the domestic economy in this table opens up to international semiconductor, this economy will

import 150 semiconductors

Human capital labor market issues:

include the skills, knowledge, and experience that people obtain.

If the price of output in an industry rises, firms in that industry will ______ labor.

increase their demand for

When labor supply decreases, the wage is expected to:

increase.

If a single supplier produces a good with many good substitutes, then

it will have little control over the market price

A compensating differential is mainly a cause of a difference in wages because:

of differences in working conditions.

In their calculation of profit, accountants typically do not take into account: also- which of the following is an example of an implicit cost of production?

opportunity cost

An external cost is cost paid by

people other than the consumer and the producer trading the market

The price of antibiotics sends the wrong signal because it includes the:

private cost but not the external cost.

A tariff is a

tax on imports

Some workers have lower wages than others because:

there are variations in the difficulty of the work.

What do economists consider to be the "great economic problem?"

using limited resources to satisfy as many of our unlimited wants as possible

In order to minimize deadweight loss, governments should place taxes on

Goods with inelastic demand

What does the demand(supply) curve show?

How much of a good people will want(make) at different prices

The market demand curve for labor is based on the:

marginal product of labor.

The power to raise price above marginal cost without fear that other firms will enter the market is:

market power

Which equation correctly identifies social cost?

market price+external cost=social cost

A monopolist can sell 300 units of output for $29.00 per unit. Alternatively, it can sell 301 units of output for $28.25 per unit. The marginal revenue of the 301st unit of output is

$-196.75

If a firm has revenues of $100, explicit costs of $50, and implicit costs of $50, its economic profit is:

$0

Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—Market A and Market B—what price should the monopolist charge in Market A?

$10

Refer to the figure. What is the maximum price that the consumer is willing to pay for 100 units?

$100

Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. If the programs are sold as a bundle, what is the profit-maximizing price?

$110

Which of the following is a possible effect of a price ceiling?

THe quantity demanded exceeds the quantity supplied

Refer to the table. What is the marginal product of labor for the fifth worker?

$180

During a crisis such as Hurricane Katrina,.... if a person has a flashflight that she values at $5, but its price on the black market is $40, what gains from trade are lost if the government shuts down the black market?

$35

Suppose that Southwestern Airlines flight 171 will depart BWI for Detroit in 3 hours. The marginal cost and average cost of flying a customer are $35 and $68, respectively. Southwestern Airlines can increase its profits by selling a ticket for no less than

$35

The table of costs of antibiotics

$35

Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—Market A and Market B—through the process of price discrimination, how much profit is the monopolist making in Market A? for market B

$450- market A $520- market B

If a firm has a revenue of $100, explicit cost of $50, and implicit costs of $50 then its accounting profit is?

$50

Use the figure, at a price of $20, the firm earns profit of

$75

Who is harmed by trade protections like tariffs and quotas?

1. Consumers who have to pay a higher price for the good 2. The industries and consumers affected by the inefficient use of domestic resources sucked into the protected industry 3. Foreign producers whose product are placed at a disadvantage by the protections 4.Consumers who have to pay a higher price for the good all of the above

In the United States, the long-run elasticity of oil demand has been estimated at -.5, How much would the price of oil have to permanently rise in order to cut oil consumption by 50%

100%

Refer to the figure. What is the profit-maximizing quantity for this monopolist?

110

In which year did President Nixon declare a freeze on all price and wage increases?

1971

What is the marginal cost of producing the seventh barrel of oil?

36

Refer to the table. The market equilibrium quantity is ________ and the efficient equilibrium quantity is ________.

3:2

Refer to the table. What is the monopolist's profit-maximizing level of output?

4

Clark starts a coffee shop and begins hiring employees. The first employee' marginal product of labor (MPL) is $128 an hour and the MPL for each employee beyond the first adds half of the previous employee's ($64 for the second, $32 for the third, etc.). If the market wage for employees is $7 an hour, how many employees should Clark hire?

5

Barrels of oil 2 What is the marginal revenue of producing the fifth barrel of oil?

50

Refer to the table. If the market wage for each worker was $125 per day, how many workers would the firm hire?Same for 100

6

Refer to the table. How many barrels of oil should the company produce to maximize profit?

8

What is a price ceiling?

A maximum price allowed by law

What is a price floor?

A minimum price allowed by law

Which of the following best illustrates the elimination principle?

Above-normal profits are reduced as new firms enter the market.

Some bars host a "ladies' night," on which women get drinks free or at a discount. Aside from differing elasticities of demand, why might bars want to charge a lower price to women than to men?

An increased quantity of drinks sold to women will attract male customers.

Why can't marginal cost decrease forever?

At some point, firms encounter physical limits of production

Suppose Winston's loud music externalizes a cost onto his neighbor, Chloe. Suppose Winston and Chloe decide to solve this problem using the Coase theorem. If they are successful, what is a possible result of the execution of this theorem?

Chloe pays Winston weekly to refrain from playing music loudly.

Which of the following goods is likely to have the most inelastic demand curve?

Demand for beef over the next day Demand for food

Which of the following goods is likely to have the most inelastic demand curve?

Demand for transportation

This figure shows the production costs of two firms that produce bird feeders. If these two firms represent total production in the industry, how should they allocate the production of 200 bird feeders to minimize costs?

Firm 1 should produce 150 bird feeders, and Firm 2 should produce 50 bird feeders.

Why does economic growth require job destruction?

Economic growth comes from creating and producing goods that use resources more productively, causing job loss in industries that use outdated technology

In an effort to reduce obesity, many governments have imposed or considered placing a tax on sugar-sweetened beverages like soda. If the government is hoping that a small tax can actually discourage soda consumption, it should hope for:

Elastic supply and elastic demand

Buyers compete with seller

False

Who pays the tax does depend on who writes the check to the government

False

Who pays the tax does depend on who writes the check to the government.

False

The shortage in apartments causes by rent control is worse

In the long-run, because long run supply is more elastic

When labor supply decreases, the wage is expected to

Increase

World supply of a good IS MORE ELASTIC THAN domestic supply

Is more elastic than

Writing in 1849, Jules Dupuit observed why the rail companies actively made third- class accommodations terrible, including removing the roof from the car and having nonupholstered seats: "It is not because of the several thousand francs which they would have to spend to cover the third-class wagons or to upholster the benches that a particular railway has uncovered carriages and wooden benches; it would happily sacrifice this for the sake of its popularity. . . It hurts the poor not because it wants them to personally suffer, but to scare the rich." How does "scaring the rich" illustrate price discrimination?

It deters those who are willing to pay more from going to third class.

What does it mean that elasticity equals escape ?

It is easy for market participants to escape to another market if they have elastic demand or supply

The supply of a good is more elastic when

It is easy to produce more at the same cost

Circa 1200 BCE, a decreasing supply of tin due to wars and the breakdown of trade led to a drastic increase in the price of bronze in the Middle East and Greece (tin being necessary for its production). It is around this time that blacksmiths developed iron- and steel-making techniques (as substitutes for bronze). What does the increasing price of bronze signal?

It tells people that bronze is getting harder to find and its higher price will signal consumers to conserve it more or seek substitutes.

Along a supply curve, if the price of oil falls, what will happen to the quantity of oil supplied?

It will decrease

There are two major theories of why education leads to higher earnings (though they are not mutually exclusive): signaling and the building of labor market issues. If the signaling theory is dominant, how would the average wage for college graduates change if everyone received a college degree?

It would decrease because it would be more difficult to differentiate workers.

Which of the following best describes competitive industry?

Its firms sell similar products and have little control over their prices, there are many buyers and sellers and each is relatively small compared with the overall market

What is the profit maximization condition for a monopolist?

MR=MC

If the price of cars were to fall, what would carmakers likely do?

Make fewer cars

Because of pressure from Western countries, garment producers in Bangladesh quit employing 30,000 to 50,000 child workers, what happened to these children?

Many children went to work in jobs with worse conditions and lower pay, many in prostitution

Airline regulation of the 1970s produced a similar result to which of the following government interventions?

Minimum wage laws

Selling chicken total 7 is sold total of 12

Mom & Pop: 3; Big-Box: 4 Mom & Pop: 5; Big-Box: 8

Suppose that changing climate conditions results in a shortage of wood. Which of the following is the most likely consequence of this shortage?

No one has any idea, but the market system will sort everything out for us, and make sure we continue to use wood in the most valuable ways possible

In the long run, competitive firms want to exit industries in which:

P < AC.

A firm should exit an industry if

P-AC <0

To maximize profit, a firm in a competitive market increases output until

P= MC

Stating that TR=TC is equivalent to stating that

P=AC

When demand decreases(increases), what happens to price and quantity in equilibrium?

Price decreases(increases) and quantity decreases(increases)

When supply decreases (increase), what happens to price and quantity in equilibrium?

Price increases(decreases) and quantity decreases(increases)

In 1938, Congress set the first minimum wage at $.25 per house. While this was a modest price floor for the country, it was a very large increase for what US territory which was not exempt from the law?

Puerto Rico

The elasticity of demand is 1.4. Is the demand curve relatively steep or flat? Will a fall in price raise total revenue or lower it? The elasticity of demand is 0.6. Is the demand curve relatively steep or flat? Will a fall in price raise total revenue or lower it?

Relatively flat; raise total revenue Relatively steep; lower total revenue

In a competitive market, what does it mean when a company goes out of business

Resources are freed up to go to some other higher-valued use

After a pair of wars in the late seventeenth and early eighteenth centuries.... of the arguments against free trade, which seems most likely to apply here, given the information provided?

Saving domestic jobs

On June 30, 2011, the price of 5,000 ounces of silver for December 1, 2013, was about $36 an ounce (or $180,000 for all 5,000 ounces). Suppose Chloe believers that the price of an ounce of silver in December 2013 will be $20. Should Chloe agree to buy or sell silver in a future contract?

She should sell, because $20 is cheaper than $36

Increasing prices act as a signal to

Supplier to increase the quantity supplied in those markets

Which of the following goods is likely to have the most elastic supply curve?

Supply of bananas in Tempe, Arizona Supply of Maruchan Ramen Noodles

Which of the following goods is likely to have the most elastic supply curve?

Supply of coffee over the next decade

If the government imposes a commodity tax on the sellers of a good, which of the following describes the change at the market?

Supply shifts up by the amount of the tax

Adults have more money than teenagers and perhaps more inelastic demand for video games than teenage video gamers. Why might it be difficult to price discriminate based on this fact?

Teenage gamers could exploit arbitrage opportunities, buy games at the low price, and re-sell them to adult gamers.

Which of the following is an example of an external cost?

The annoyance your neighbor experiences from hearing you play your music.

When the price of Coca-Cola goes up(down),what probably happens to the demand for Pepsi, a substitute for Coke-Cola

The demand for Pepsi increases(decreases)

When the price of Peanut Butter goes up, what probably happens to the demand for Jelly, a compliment for Peanut Butter?

The demand for jelly decreases

When the price of Peanut Butter goes down, what probably happens to the demand for jelly, COMPLIMENT for peanut butter?The demand for jelly increases

The demand for jelly increases

Before the shipping container, cargo had to be removed from a ship piece by piece, a very time-consuming process requiring a lot of dockworkers to accomplish. The shipping container allows a single dockworker to accomplish what it took several workers to do by moving many pieces of cargo all at once. The West Coast Dockworkers' Union was concerned about the change and demanded compensation from an association of shipping companies resulting in the Mechanization and Modernization Agreement of 1961. But, if automation increased wages, which of the following best explains why the workers resisted change?

The least productive members were concerned about automation.

Which of the following is an example of a price floor?

The minimum wage

The HP Stock exchange

The probability of selling between 15,000 and 20,000 units is believed to be 40%

Which of the following is a possible effect of a price floor?

The quantity supplied exceeds the quantity demanded.

If students in the United States go online and import the much cheaper Indian version of your textbook instead of buying the American edition, how might this arbitrage nevertheless help the publisher of your textbook?

The students who go to the trouble to do this might have had low willingness-to-pay in the first place, so the arbitrage enables another layer of price discrimination.

Norman Borlaug won the Nobel Peace Prize in 1970 for the economic effects of developing high-yield disease-resistant wheat crops which allowed farmers to produce more wheat at lower cost. What is the economic effect of this technological innovation?

The supply for wheat increased

What is likely to happen if the price of oil increases?

The supply of rubber duckies which use oil as an input of production, would decrease

A slave redemption program would be most effective at reducing slavery when

The supply of slaves is inelastic

What is deadweight loss?

The value of trades which are mutually beneficial to both buyers and sellers, but do not occur because of taxes The negative value of trades which are not mutually beneficial to both buyers and sellers, but do occur because of a subsidy.

The demand for a good is more elastic when...

There are many substitutes for that good.

What happens when the price in a market is below the equilibrium price?

There is a shortage of the good and buyers must compete with each other in order to get the good, often resulting in a bidding up of the price paid

Refer to the figure. What is the profit that the monopolist is earning?

There is not enough information to answer the question.

Lynda and Timothy batter=30 vs 45 Frosting 45 vs 30 who should specialize in making cake batter?

Timothy

Janitors in India might make $1,000 per year, while they could easily earn $20,000 per year in the United States. How is this a forgone gain from trade?

Total surplus would be higher if the Indian janitors could come to the United States to work.

Why are the long lines generated by a shortage worse than paying a higher price in money?

Waiting in line is a waste of valuable resource:Time. Paying a price in money transfers the value of resources from one person to another, and maximizes the value of resources

What is absolute advantage?

When an ind., firm, or country can produce something using fewer resources than other ind.,firms, or countries

What is comparative advantage?

When an individual, firm, or country can produce something at a lower opp. cost than other ind. firms or countries

When will people search harder for substitutes and alternatives for oil?

When the price of oil is high

Which is an example of an external benefit?

Your neighbors fix up their homes, which raises property values on the entire street.

A futures contract is:

a contract to buy or sell commodities at some point in the future at a predetermined price.

When demand is relatively elastic, monopolists will charge

a lower markup

In Chicago's Southside (and other places), auto mechanics (who work outside the formal sector, without a business license, advertising, or even a garage) will do work for gang members without charging them. In exchange, gang members chase away other mechanics who wish to operate in the area. These auto mechanics have monopoly power; what type of source does it come from?

barriers to entry

Imagine that you could travel back in time to another era, bringing with you all the knowledge you have from the modern age. Your wage in the older era might be higher because people with your knowledge were in short supply then. But why might your wage also be lower?

because in bygone eras the economy was less productive overall

If arbitrage becomes extensive, a price-discriminating monopolist selling its patented drug in two markets will:

begin to charge the same price in both markets.

The social cost of driving an SUV is equal to

both the cost of vehicle's pollution and its operation (gas, etc)

If the price goes down(up)

buyers(sellers) will want to buy(sell) more

In a free market, if the profit rate in the car industry were higher than in the computer industry, this is a signal that:

entrepreneurs should move resources from the computer industry to the car industry.

Above-normal profits are eliminated by ______, and below-normal profits are eliminated by ______.

entry; exit

When a monopolist's demand curve is inelastic, raising the price:

increases total revenue and decreases total cost.

large-scale central planning has been abandoned throughout the world (except for n.k. and cuba) because of INFORMATION and INCENTIVE problems

information;incentive

On Black Fridays, most retail outlets have major storewide sales. Yet, as one of the busiest shopping days in the United States, one would expect prices to increase, not decrease. Price discrimination explains the answer to this question because price:

insensitive shoppers will stay away to avoid the crowds.

In the case of an external cost, marginal private cost:

is less than marginal social cost for all quantity levels

A Pigouvian tax:

is levied on a good that creates a negative externality and should be set equal to the external cost to eliminate the deadweight loss.

Suppose that you own two farms on which to grow corn. In order to lower the cost of production, you determine to increase production on Farm 1 and reduce it on Farm 2. This implies that the marginal cost of production on Farm 1 is:

less than the marginal cost of production on Farm 2

To better feed his army, Napoleon established a technology prize that led to the development of canning in 1809. Napoleon required the inventor—Nicolas Francois Appert—to publish the method. Napoleon's reign as Emperor ended after his defeat at Waterloo, a defeat which might not have been so decisive had canned food not made its way to the enemies' mouths. By demanding Appert publish his method, what did Napoleon force Appert to give up?

monopoly

Pfizer sells Atgam in New Zealand for $14 per pill and in Brazil for $8 per pill. This implies that the demand curve in New Zealand must be ________ than in Brazil.

more inelastic

Entrepreneurs have the incentive to

move resources out of low value industries and into high value industries

If the U.S. government wanted to use strategic trade protectionism for U.S. produced fertilizer it would

place a tax or put a limit on the exports of U.S. fertilizer

Total cost equals fixed cost PLUS vaiable cost

plus

Which of the following conditions would prevent a firm from setting different prices in different markets?

possibility of arbitrage for buyers between different markets

Economic theory suggests that a natural monopoly should be:

regulated to take advantage of economies of scale.

Under perfect competition, the rate of profit tends to be ______ in all industries, so the marginal value of resources is ______ in all industries.

same;same

Millions of producers working across the world cooperate to ensure that many more millions of consumers can have the goods and services they desire. These producers do not know each other and are not coordinate by a central agency. Their actions are directed simply by

self-interest

The market supply curve for labor:

slopes up.

An efficient equilibrium occurs whenever:

social surplus is maximized.

A prediction market is a:

speculative market carefully designed so that prices can be interpreted as probabilities and used to make predictions.

The individual supply curve for labor:

starts sloping up and then bends back as wages rise.

A firm with no competitors:

still faces a downward-sloping demand curve.

Marián Hossa was paid $7.4 million by the Detroit Red Wings for the 2008-2009 season. We can conclude that:

the Red Wings expected Marián Hossa to increase the team's revenue by at least $7.4 million.

Economies of scale are:

the advantages of large-scale production that reduce average cost as quantity increases.

The paper industry and brewery industry each emit 60 tons of particulates into the air. It costs the paper industry $1,000 to remove 1 ton of particulates, and it costs the brewery industry $1,400 to remove 1 ton of particulates. In an effort to reduce particulate pollution, the government gives each industry tradable allowances worth 50 tons of particulates. We would expect that:

the brewery industry will buy tradable allowances from the paper industry at a cost between $1,000 and $1,400 per allowance.

marginal cost is

the change in total cost from producing one or more units of output

Since a competitive firms set MR=P to determine all quantities in the short run, we can conclude that

the demand curve faced by each individual competitive firms is perfectly elastic

After a hurricane knocks out power to thousands of households, the price of electric generators increase threefold. According to economics

this discourages the use of electric generators in low-value uses, making them more readily available for high value uses

Refer to the table. Suppose that we want to produce seven barrels of oil. To minimize costs, we should produce

three barrels of oil from Oil Pump One and four barrels of oil from Oil Pump Two

Because Colgate owns patent number 5,547,091, only Colgate sells toothpaste with a flip-top cap, while others use the more traditional screw top. A patent probably wasn't a necessary incentive for Colgate to develop the flip-top cap, so why did it patent the cap?

to establish market power

When the government subsidizes an activity, resources such as labor, machines, and bank lending will tend to gravitate TOWARD the activity that is subsidized and will tend to gravitate AWAY FROM activity that is not subsidized

toward; away from

Hewlett Packard's pricing scheme is to sell printers at relatively low price and ink cartridges at relatively high price. This practice is known as:

tying.

Programs such as Steam distribute more and more video games. Purchasers buy the game and download it immediately to their computer. If the entire system is automated, estimate the marginal cost of producing and selling video games this way (ignore electricity costs).

zero

In the case of a perfectly price-discriminating monopoly, there is:

zero consumer surplus.

Normal profits in a perfectly competitive industry refer to ______ run profits.

zero long