econ midterm questions

Ziva is an organic lettuce famer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting S130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce.

$-80

Celine buys a new MP3 player for $90. She receives consumer surplus of $15 on her purchase if her willingness to pay

$105

Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local gas station is $3.80. If she purchases ten gallons of gasoline, then Kelly's consumer surplus is

$14

Inefficiency exists in a market when a good is

not being consumed by buyers who value it most highly.

which following statements is correct?

who actually pays a tax depends on the price elasticities of supply and demand

Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are

$25.

Scenario 13-16 Barney builds custom wooden birdhouses. He can make 150 birdhouses per month and sell them for $50 each. His average total cost is $30 per birdhouse. Refer to Scenario 13-16. Barney is considering hiring his best friend Fred to work for him. Fred can build 125 birdhouses per month. If Barney hires Fred, what will be the monthly marginal product?

125 birdhouses

Consumer surplus is

All of the above are correct.

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

All of the above are correct.

Which of the following statements about costs is correct?

As the quantity of output increases, marginal cost eventually rises.

Which of the following is not a property of a firm's cost curves?

Average total cost will cross marginal cost at the minimum of marginal cost.

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?

Buyers of milk, recognizing that the price ceiling is good for them. have pressured policymakers into imposing the price ceiling.

Which of the following statements is not correct about a market in equilibrium?

Consumer surplus will be equal to producer surplus.

Connie can clean windows in large office buildings at a cost of $1 per window. The market price for window-cleaning services is $3 per window. If Connie cleans 100 windows, her producer surplus is $100.

False

Consumer surplus can be measured as the area between the demand curve and the supply curve.

False

If the marginal cost of producing the fifth unit of output is higher than the marginal cost of producing the fourth unit of output, then at five units of output, average total cost must be rising.

False

Joel has a 1966 Mustang, which he sells to Susie, an avid car collector. Susie is pleased since she paid S8.000 for the car but would have been willing to pay $11,000 for the car. Susie's consumer surplus is $2,000.

False

The marginal-cost curve intersects the average-total-cost curve at the output level where average fixed costs are zero.

False

Producer surplus equals the

O amount received by sellers minus the cost to sellers.

non-binding price ceiling

Set above the equilibrium price

Which of the following is not correct?

The minimum wvage is binding for workers with high skills and much experience.

Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above the long-run curve.

True

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

True

Even though participants in the economy are motivated by self-interest, the "invisible hand" of the marketplace guides this self-interest into promoting general economic well-being.

True

Which of the following would not be considered a negative externality?

You have an adverse reaction to a medication your doctor prescribed for you.

The "invisible hand" is

a concept developed by Adam Smith to describe the virtues of free markets.

The best remedy for market failure is often

a market-based solution.

Which of the following is a way to address an externality problem?

all of the above.

If an allocation of resources is efficient, then

all potential gains from trade among buyers are sellers are being realized.

The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is

an implicit cost.

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

between $0.50 and $1.

Marginal cost is equal to

change in TC/change in Q

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

consumer does not purchase the good.

The difference between social cost and private cost is a measure of the

cost of an externality

Suppose the government imposes a 50-cent tax on the sellers of packets of chewing gum. The tax would

discourage market activity.

which of the following is not an example of a public policy?

equilibrium laws

All buyers benefit from a binding price ceiling. True False

false

The marginal product of labor is equal to the

increase in output obtained from a one unit increase in labor.

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

increase, and the quantity sold in the market will increase

Economies of scale arise when

individuals in a society are self-sufficient.

Patents do not

internalize externalities.

Consumer surplus

is the amount a consumer is willing to pay minus the amount the consumer actually pays.

Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market

may increase, decrease, or remain unchanged.

When externalities exist, buyers and sellers

neglect the external effects of their actions, and the market equilibrium is not efficient.

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

offer grants to university researchers

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to

pay you at least $60 but less than $80 to live with the clutter.

suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. as a result of the price floor, the

quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases

In Singapore, littering fines are strictly enforced. This is an example of a policy that

relies on incentives to reduce the pollution externality.

Producer surplus is

represented on a graph by the area below the demand curve and above the supply curve.

if a tax is imposed on a market with inelastic demand and elastic supply, then

sellers will bear most of the burden of the tax

if a tax is levied on the buyers of a product, the the supply curve will

shifts up

After a binding price floor becomes effective, a

smaller quantity of the good is bought and sold.

A tax on sellers will shift the

supply curve upward by the amount of the tax

A binding price floor causes

surplus

An externality exists whenever

the economy cannot benefit from government intervention.

An externality is

the uncompensated impact of one person's actions on the well- being of a bystander.

A simultaneous increase in both the demand for MP3 players and the supply of MP3 players would imply that

the value of MP3 players to consumers has increased, and the cost of producing MP3 players has decreased

Which of the following can be added to profit to obtain total revenue?

total cost

The amount of money that a firm receives from the sale of its output is called

total revenue.

Economists typically measure efficiency using

total surplus.

Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie jars is $90,000. The annual explicit costs of the materials used to make the cookie jars are $54,000. Refer to Scenario 13-13. Christine used $5,000 from her personal savings account to buy pottery tools for her business. The savings account paid 1% annual interest. Christine could earn $6,000 per year as a tax preparer. What is the annual accounting profit of her cookie jar business?

$36.000

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.

Which of the following would least likely result of a binding price ceiling impose on the market for rental cars

Free gasoline given to the people as an incentive to rent a car

Government can be used to solve externality problems that are too costly for private parties to solve.

True

If a price ceiling of $1.50 per gallon is imposed on gasoline, and the market equilibrium price is $2, then the price ceiling a binding constraint the market.

True

If the government removes a binding price ceiling in a market, then the producer surplus in that market will increase.

True

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

True

The shape of the marginal cost curve tells a producer something about the marginal product of her workers.

True

The term tax incidence refers to have the burden of tax is distributed among the various people who make up the economy

True

Workers with high skills and much experience are not typically affected by the minimum wage.

True