WALSH HONORS ECON FINAL

When the country moves from no trade to free trade, consumer surplus

increases by $1,200 and producer surplus decreases by $600.

When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit

is at least zero

The Tragedy of the Commons

is eliminated when property rights are assigned to individuals

The price ceiling shown in panel (a)

is not binding

The tax incidence

is the manner in which the burden of a tax is shared among participants in a market.

If people can be prevented from using a certain good, then that good is called

excludable

Which of the following represents the firm's long-run condition for exiting a market?

exit if P<ATC

With trade, Scotland will

export 11 units of wool

A legal minimum on the price at which a good can be sold is called a price

floor

In the short run, a firm operating in a competitive industry will shut down if price is

less than average variable cost

In which market will the majority of the tax burden fall on sellers?

market (a)

Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

If the economy is at point B on the curve, then an increase in the tax rate will

increase the deadweight loss of the tax and decrease tax revenue

The minimum wage is an example of a

price floor

Because of the free-rider problem,

private markets tend to undersupply public goods

A free rider is a person who

receives the benefit of a good but avoids paying for it

Explicit costs

require an outlay of money by the firm

If one person's use of a good diminishes another person's enjoyment of it, the good is

rival in consumption

A supply curve can be used to measure producer surplus because it reflects

sellers' cost

Rent control

serves as an example of a price ceiling

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should

stay open because shutting down would be more expensive.

A minimum wage that is set above a market's equilibrium wage will result in an excess

supply of labor, that is, unemployment

A tariff is a

tax on imported goods

Marginal cost equals

the slope of the total cost curve

The amount of tax revenue received by the government is equal to

$490

The amount of deadweight loss as a result of the tax is

$105

The price that buyers effectively pay after the tax is imposed is

$12

What are Wanda's total accounting profits?

$126

If the market price is $10, what is the firm's short-run economic profit?

$15

What is the average variable cost of producing 6 cakes at Betty's Bakery?

$18

What is the marginal cost of the 4th cake at Betty's Bakery?

$19

What is the average total cost of producing 6 cakes at Betty's Bakery?

$22.17

How much DWL does the tariff create?

$250

If the price of the product is $18, then the total consumer surplus is

$46

The amount of revenue collected by the government from the tariff is

$288

The per-unit burden of the tax on sellers is

$3

The tax results in a loss of consumer surplus that amounts to

$340

If Boxland prohibits international trade in cardboard, then the equilibrium price of a ton of cardboard is

$52 and the equilibrium quantity of cardboard is 96 tons

How much tax revenue does the tariff generate for Boxland?

$600

What is the average fixed cost of producing 3 cakes at Betty's Bakery?

$8.33

The deadweight loss caused by the tariff is

$96

What are Wanda's total economic profits?

$96

Economists normally assume that the goal of a firm is to earn (i) profits as large as possible, even if it means reducing output. (ii) profits as large as possible, even if it means incurring a higher total cost. (iii) revenues as large as possible, even if it reduces profits.

(i) and (ii) only

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit

20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

Kristi and Rebecca sell lemonade on the corner. It costs them 9 cents to make each cup. On a certain day, they sell 40 cups, and their producer surplus for that day amounts to $12.40. Kristi and Rebecca sold each cup for

40 cents

At what quantity does Bill maximize profits?

6

With free trade, the country imports

60 units of the good

When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers?

ACH

Total surplus

All of the above are correct

Which of the following statements best expresses a firm's profit-maximizing decision rule?

All of the above are correct

Assume the world price of cardboard is $30. In that event:

Boxland will import 110 tons of cardboard

Assume that Boxland producers successfully lobby for a $10 tariff on cardboard. In that event:

Boxland will import 60 tons of cardboard

Suppose the cost to erect a tornado siren in a small town is $20,000. In addition, suppose the value of a human life is $10 million. By what percentage would the siren need to reduce the risk of a fatality for the benefits of the siren to exceed the costs of the siren?

By at least .2 percentage points

If the government decides to build a new highway, the first step would be to conduct a study to determine the value of the project. The study is called a

Cost-benefit analysis

Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3,500 in monthly revenue

In the short run, Susan should continue to operate her business, but in the long run she should exit the industry.

Which of the following statements is correct?

If average total cost is rising, then marginal cost is greater than average total cost.

In order to reach the social optimum, the government could

Impose a tax of $8 per unit on plastics

How long does it take a firm to go from the short run to the long run?

It depends on the nature of the firm

The curve that is shown on the figure is called the

Laffer curve

Firms will be encouraged to enter this market for all prices that exceed

P3

An optimal tax on pollution would result in which of the following?

Producers will internalize the cost of the pollution

Which of the following combinations will minimize the deadweight loss from a tax?

Supply 1 and Demand 1

Consumer surplus is

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the railroad is not liable for any damage caused to the crops. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome?

The farmer will pay the railroad $1200 to purchase the grease so that no crop damage will occur

Which of the following equations is not valid?

Total surplus = Value to seller - Cost to sellers

In many cases the Coase theorem does not work well because

Transaction costs are too high

If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill, the policy would be considered

a corrective tax

A price ceiling is

a legal maximum on he price at which a good can be sold

An externality is an example of

a market failure

In panel (b), there will be

a surplus of wheat

A demand curve reflects each of the following except the

ability of buyers to obtain the quantity they desire

A price floor is binding when it is set

above the equilibrium price, causing a surplus.

The incidence of a tax falls more heavily on

all of the above

Foregone investment opportunities are an example of

an implicit cost.

The graph illustrates a typical production function. Based on its shape, what does the corresponding total cost curve look like?

an upward-sloping curve that increases at an increasing rate

Average total cost is very high when a small amount of output is produced because

average fixed cost is high

The cost of producing the typical unity of output is the firm's

average total cost

When a firm is operating at an efficient scale,

average total cost is minimized

A price ceiling is binding when it is set

below the equilibrium price, causing a shortage

If the horizontal line on the graph represents a price floor, then the price floor is

binding and creates a surplus of 90 units of the good

Who is a price taker in a competitive market?

both buyers and sellers

When a tax is placed on the sellers of energy drinks, th

burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

Goods that are rival in consumption but not excludable would be considered

common resources

The Great Lakes are

common resources

Goods that are not excludable include both

common resources and public goods

What is the fundamental basis for trade among nations?

comparative advantage

Area C represents the

consumer surplus to new consumers who enter the market when the price falls from P2 to P1.

The decrease in total surplus that results from a market distortion, such as a tax, is called a

deadweight loss

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would

decrease by less than $500

Relative to the free-trade outcome, the imposition of the tariff

decreases imports of the good by 24 units and increases domestic production of the good by 8 units.

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing

diminishing marginal product

In the long run Firm A incurs total costs of $1,200 when output is 30 units and $1,650 when output is 40 units. Firm A exhibits

diseconomies of scale because average total cost is rising as output rises

When new firms have an incentive to enter a competitive market, their entry will

drive down profits of existing firms in the market

Excessive fishing occurs because

each individual fisherman has little incentive to maintain the species for the next year

When a tax is placed on the sellers of a product, buyers pay

more, and sellers receive less than they did before tax

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called

the Coase theorem

Producer surplus is

the amount a seller is paid minus the cost of production.

Efficiency in a market is achieved when

the sum of producer surplus and consumer surplus is maximized.

The graph represents a market in which

there is a negative externality

The price of sugar that prevails in international markets is called the

word price of sugar