AREC 202

1. A tariff is a tax imposed on ________ good. A) an imported B) a luxury C) an illegal D) a domestic

A

1. Refer to the accompanying figure. At the equilibrium price, total consumer surplus is: A) $7.50 per day. (1/2 *3*5) B) $10 per day. C) $15 per day. D) $40 per day.

A

1. What is the socially optimal number of steers to be sent onto the commons? A) 1 B) 2 C) 3 D) 4 E) 5

A

Suppose Juliana owns a small business making handbags. Each month she makes 18 handbags, which she sells for $100 each. The materials used to make each handbag cost $50. In addition, Juliana uses a spare room in her house to make the handbags and store her supplies. If she were not using the spare room for her business, she would use it as a guest room, an option that Juliana would value at $250 per month. If Juliana weren't making handbags, she would work at Trader Joe's earning $800 per month. What is Juliana's economic profit each month? A) −$150 (TR=18*100=1800. Explicit costs=50*18=900; Implicit costs=800+250=1050; So Economic Profit= 1800-900 (AP)-1050=-150 B) $900 C) $650 D) $750

A

The "hurdle method" of price discrimination results in (i) _______ and (ii) ______ compared to a single-price monopolist A) (i) more quantity being sold, (ii) higher total surplus. B) (i) more quantity being sold, (ii) lower total surplus. C) (i) less quantity being sold, (ii) higher total surplus. D) (i) less quantity being sold, (ii) lower total surplus.

A

The private market equilibrium quantity is ________ doses per day. A) 75 B) 100 C) 50 D)125

A

What is the difference between "shutting down" and "exiting"? A) "Shutting down" is a short-run decision, resulting in negative profit, while "exiting a market" is a long-run decision. B) "Shutting down" is a short-run decision, resulting in zero profit, while "exiting a market" is a long-run decision. C) "Exiting a market" is a short-run decision, resulting in negative profit, while "shutting down" is a long-run decision. D) "Exiting a market" is a short-run decision, resulting in zero profit, while "shutting down" is a long-run decision.

A

Which of the following would be most vulnerable to the tragedy of the commons? A) Timber on public land B) Apples in Phoebe's apple orchard C) Toothbrushes sold at Target D) Cattle on a ranch

A

1. A monopolistically competitive firm is one: A) that behaves like a monopolist. B) of many firms that sell products that are close but not perfect substitutes. C) of many firms that all sell the exact same product. D) of a small number of firms that sell products that are close but not perfect substitutes.

B

1. Assume Ben's production of ice cream causes external costs (due to pollution) of $30 to Jerry. It would cost Ben $10 to install a machine that would stop the pollution, but he could still produce ice cream. Assume further Ben has the legal right to pollute, and that Ben and Jerry can negotiate easily. Then we can expect in this situation that A) Jerry pays Ben between $0 and $10 so that Ben stops the pollution. B) Jerry pays Ben between $10 and $30 so that Ben stops the pollution. C) Jerry and Ben do not find common ground for negotiations, and Ben keeps polluting. D) Ben pays Jerry between $0 and $10 so that he can keep polluting. E) Ben pays Jerry between $10 and $30 so that he can keep polluting.

B

1. Assume Ben's production of ice cream causes external costs (due to pollution) of $30 to Jerry. It would cost Ben $10 to install a machine that would stop the pollution, but he could still produce ice cream. What is the socially optimal outcome? A) Ben keeps polluting. B) Ben stops polluting. C) The answer depends on whether Ben has the legal right to pollute or Jerry has the legal right to no pollution. D) The answer depends on whether Ben and Jerry can negotiate with each other or not.

B

1. Environmental pollution is an example of A) a positive externality. B) a negative externality. C) a private good. D) a situation where an unregulated market results in the socially optimal outcome.

B

1. How many cars will this country import in an open economy situation? A) 20,000 B) 40,000 C) 60,000 D) 80,000

B

1. How many computers will the monopolist sell to maximize profits? GRAPH A) 0 B) 30 C) 45 D) 60

B

1. Sheila and Jim live in an island where they are the only two workers. Sheila can either catch 10 fish or gather 40 pounds of berries each day, and Jim can either catch 8 fish or gather 24 pounds of berries each day. Both of them work 200 days per year. At current world prices 1 fish trades for 3.5 pounds of berries. If they open up to trade and the citizens of the island consumed 1,200 fish per year, how many pounds of berries can they consume every year? A) 12,800 pounds B) 9,400 pounds Sheila OC fish=40/10=4 berries/fish Jim OC fish=24/8=3 berries/fish So Jim will catch Fish, Sheila will produce berries. Jim will catch 8*200=1600 fishes. Sheila will 40*200=8,000 pounds of berries. But island only needs 1200 fishes, so extra 400 (1600-1200=400) will be traded at world prices for berries. 400fishes*3.5 berries/fish (price)=1400 berries. So total berries is domestic (what sheils makes) + imports of 1400 8,000+1,400= 9,400 C) 9,200 pounds D) 8,000 pounds

B

1. The United States imports shoes from third world countries. This means that if the U.S. economy were closed, the domestic price of shoes would be ________ the world price of shoes. A) less than B) greater than C) equal to D) close to

B

A firm's profit equals: A) P − MC [price minus marginal cost]. B) (P − ATC) × Q [(price minus average total cost) times the quantity sold]. C) P × Q [price times the quantity sold]. D) (P − ATC) ÷ Q [(price minus average total cost) divided by the quantity sold].

B

Assume a (non-price-discriminating) monopolist can sell 3 units if it charges $5 and 4 units if it charges $4. Then the marginal revenue for the 4th unit GRAPH A) is -$1 B) is $1. C) is $4. D) is $16. E) cannot be determined without knowing marginal costs.

B

If the government provides a subsidy of $500 per ton, then the cost of subsidy, which must be borne by taxpayers, will be ________ per day. A) $2,000 B) $6,000 (500x12) C) $5,000 D) $500

B

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day 0, 1, 4, 9, 15, 23 Output Per Day 0, 40, 80, 120, 160, 200 When the firm uses 9 employee-hours per day, it earns a daily ________ of ________. A) loss; $64 B) profit; $64 C) loss; $114 D) profit; $114

B

The main difference between the short-run and the long-run equilibrium in perfect competition is that A) in the short-run equilibrium profits have to be zero, while in the long-run equilibrium profits can be larger or smaller than zero. B) in the short-run equilibrium profits can be larger or smaller than zero, while in the long-run equilibrium profits have to be zero. C) in the short-run equilibrium there can be excess supply, while in the long-run equilibrium quantity supplied has to equal quantity demanded. D) in the short-run equilibrium quantity supplied has to equal quantity demanded, while in the long-run equilibrium there can be excess supply.

B

The most important challenge facing a firm in a perfectly competitive market is deciding: A) whether to maximize its profits. B) how much to produce. C) what price to charge. D) whether to advertise.

B

Which one is perfectly elastic, the demand curve a single perfectly competitive firm faces or the demand curve for the entire market with all firms? A) The demand curve for the entire market. B) The demand curve a perfectly competitive firm faces. C) Both are. D) Neither one is.

B

With free trade, this country's citizens can consume the greatest amount of both good A and good B if the country produces at point A) F. B) G. C) H. D) P.

B

1. Assume again Ben's production causes external costs of $30 to Jerry. It would cost Ben $10 to install a machine that would stop the pollution. Assume further that this time Jerry has the legal right to no pollution, and that Ben and Jerry can negotiate easily. Then we can expect in this situation that A) Jerry pays Ben between $0 and $10 so that Ben stops the pollution. B) Jerry pays Ben between $10 and $30 so that Ben stops the pollution. C) Jerry and Ben do not find common ground for negotiations, and Ben has to stop polluting. D) Ben pays Jerry between $0 and $10 so that he can keep polluting. E) Ben pays Jerry between $10 and $30 so that he can keep polluting.

C

1. If a firm functions in an oligopoly, it is: A) one of a small number of firms that produce goods that are either close or perfect substitutes. B) the only firm that produces a good with no close substitutes. C) one of a large number of firms that produce goods that are either close or perfect substitutes. D) one of a large number of firms that produce a good with no close substitute.

C

1. The optimal level of pollution is A) 0. B) where the difference between marginal social benefits from pollution and marginal social costs of pollution is maximized. C) where marginal social benefits of eliminating pollution equal marginal social costs of pollution. D) where marginal social benefits from pollution is 0.

C

Government interventions in a market in which originally the government had not intervened A) can always increase efficiency of that market. B) can never increase efficiency of that market. C) `can increase efficiency of that market if that market has problems with asymmetric information, externalities, lack of property rights, etc. D) can increase efficiency only if that market has no problems like the ones listed in answer C.

C

If both Art and Silvia worked full-time producing beef, how many pounds of beef can they produce per year? A) 2,000 pounds B) 4,000 pounds C) 6,000 pounds (50*40=2,00 for Silvia; plus 100*40=4,000 for Art=6,000). D) 8,000 pounds

C

If the demand and cost curves in the graph belonged to firms in a perfectly competitive market instead of a monopoly, which price would occur in this market in the short run? GRAPH A) $125 B) $150 C) $175 D) $400

C

If the monopolist chooses the profit-maximizing quantity (and price) in the graph above, what can you say about the profit that it would make? GRAPH A) It is negative. B) It is zero. C) It is positive. D) It is either positive or negative, depending on the supply curve.

C

Imagine a perfectly competitive market where all firms make $500k in revenues and zero economic profit. They all employ average CEOs, who get paid $100k each. Now one firm hires a CEO with a very unique (=non-replicable) talent that increases that firm's revenues by 50% to $750k. Which of the following statements is correct? A) The talented CEO gets paid $150k; the firm makes $200k in economic profit. B) The talented CEO gets paid $150k; the firm makes zero economic profit. C) The talented CEO gets paid $350k; the firm makes zero economic profit. D) The talented CEO gets paid $350k; the firm makes $200k economic profit.

C

The optimal level of any activity (for consumers, firms or governments) is where A) average benefits from this activity equal average costs of this activity. B) total benefits from this activity equal total costs of this activity. C) marginal benefits from this activity equal marginal costs of this activity. D) marginal benefits from this activity are maximized.

C

What price should Beth charge if she wants to maximize total economic surplus for the entire market? (MR=P=MC) GRAPH A) $0 B) $0.20 C) $0.40 D) $0.60 E) $0.80

C

1. If each villager decides individually, how many steers will be sent onto the commons? A) 1 B) 2 C) 3 D) 4 E) 5

D

1. In an open economy, this country will ________ million bushels of corn. A) import 150 B) export 300 C) import 600 D) export 600

D

1. Refer to the accompanying figure. Total utility increases with each additional pizza up to the ________ and then declines, but marginal utility ________ with each additional pizza consumed. A) 7th pizza; increases B) 6th pizza; increases C) 5th pizza; stays the same D) 6th pizza; decreases

D

1. Refer to the accompanying table. The law of diminishing marginal utility: Units Marginal Utility of Good A 30, 27, 15, 8 Marginal Utility of Good B 40,33,24,14 A) applies to Good A but not Good B. B) does not apply to either Good A or Good B. C) applies to Good B but not Good A. D) applies to both Good A and Good B.

D

1. Suppose the market for coffee is in equilibrium at a price of $5 per pound. This means that: A) any producer who sells coffee can earn a positive economic profit. B) potential producers not producing coffee have reservation prices less than $5 per pound. C) everyone can afford to buy coffee. D) potential consumers not buying coffee value it at less than $5 per pound.

D

1. The Coase Theorem is especially relevant in a situation with A) no externalities. B) no communication between polluters and victims of pollution. C) uncertainty about whether the polluter has the right to pollute or the victim has the right of no pollution. D) costless negotiations between a polluter and a victim of pollution.

D

A monopoly is socially inefficient A) because it maximizes profit. B) because consumer surplus is not maximized. C) because total surplus is maximized. D) because total surplus is not maximized.

D

Assuming that she has to charge a single price, the marginal revenue from selling a second cup of lemonade is GRAPH A) $0 B) $0.10 C) $0.20 D) $0.80 E) $0.90

D

At what price will the monopolist sell each computer? GRAPH A) $125 B) $150 C) $175 D) $400

D

If firm XYZ makes a huge profit in the short run, what do economic models predict to happen in this market? A) Other firms try to enter the market and to imitate XYZ. B) Other firms exit the market because they realize they cannot compete with XYZ. C) XYZ will try to build barriers to entry so that others have a hard time entering the market. D) Both A and C can be expected to happen. E) Both B and C can be expected to happen.

D

Now suppose Beth can tell the reservation price of each person and can perfectly price-discriminate (charge different consumers different prices). How many cups of lemonade should Beth sell if she wants to maximize her profit? A) 4 B) 5 C) 6 D) 7 E) 8

D

The marginal cost of the second cup is GRAPH A) $0 B) $0.10 C) $0.20 D) $0.40 E) $0.90

D

Why is perfect competition (under certain assumptions) efficient? A) Because profits are zero. B) Because profits are maximized. C) Because consumer surplus is maximized. D) Because total surplus is maximized.

D

With perfect price discrimination, A) there is a deadweight loss, and total surplus is entirely consumer surplus. B) there is a deadweight loss, and total surplus is entirely producer surplus. C) there is no deadweight loss, and total surplus is entirely consumer surplus. D) there is no deadweight loss, and total surplus is entirely producer surplus.

D

How many cups of lemonade should Beth sell if she wants to maximize total economic surplus? GRAPH A) 0 B) 1 C) 3 D) 5 E) 7

E

What is Beth's profit-maximizing price when she can only charge a single price? GRAPH A) $0 B) $0.40 C) $0.50 D) $0.60 E) $0.70

E