Econ 101 Exam 2 Questions

After earning your BA, you have to decide whether to accept the offer of a job that will pay you $45,000 per year or spend an additional two years earning an MBA. If you decide to pursue the graduate degree, your annual expenses for tuition, books, board, and lodging will be $32,000. You have been offered a scholarship for $10,000 per year, but in order to pay the remaining $22,000 per year, you would have to cash in savings bonds that your grandparents have given you that have been earning $500 in interest per year. The annual opportunity cost of earning your MBA is: A) $67,500. B) $77,000. C) $99,000. D) $77,500.

$67,500.

At the point at which it is currently producing, the United States must give up the production of 500 bicycles to produce 20 additional tractors. The opportunity cost of producing 100 bicycles is ________ tractor(s). A) 1 B) 4 C) 25 D) 100

4

(Figure and Table: Variable, Fixed, and Total Costs) Look at the figure and table Variable, Fixed, and Total Costs. In the figure, when 51 bushels of wheat is produced, the average fixed cost is ________, average variable cost is ________, and average total cost is ____. A) $7.84; $11.76; $19.60 B) $133.33; $200; $333.33 C) $400; $600; $1,000 D) $5.33; $13.33; $18.67

A

(Figure: Marginal Benefit Curve) Look at the figure The Marginal Benefit Curve. According to the marginal benefit curve, the total benefit of mowing four lawns is approximately: A) $25 B) $35 C) $80. D) $114.

A

(Figure: Marginal Benefits and Marginal Costs) Look at the figure Marginal Benefits and Marginal Costs. As shown, more time spent studying economics adds points to economics scores but (MB) subtracts points from accounting scores (MC). When Claudia studies economics for 4 hours, the marginal benefit is ________ points; when Claudia studies for 6 hours, the marginal benefit is ________ points. A) 20; 10 B) 30; 10 C) 20; 0 D) 20; 30

A

(Figure: Short-Run Costs) Look at the figure Short-Run Costs. B is the ________ cost curve. A) average total B) average variable C) marginal D) total

A

(Figure: The Market for Hotel Rooms) Look at the figure The Market for Hotel Rooms. Suppose the equilibrium price is $110 and the equilibrium quantity is 250. If the local government levies a tax of $30 per night on each hotel room rented, the new equilibrium price will equal ________ and the new equilibrium quantity will equal ________. A) $140; 100 B) $130; 150 C) $120; 200 D) $110; 250

A

(Table: Labor and Output) Look at the table Labor and Output. The marginal product of the fourth worker is: A) 9. B) 36. C) 10. D) 6.

A

(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor. Assume that the marginal benefit is constant in intervals of production. Suppose five slices of pizza are currently being produced. What is the marginal benefit of producing one more slice of pizza? A) $3 B) $2 C) $15 D) $55

A

(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor. Assume that the marginal cost is constant in intervals of production. The marginal cost of producing one more slice of pizza if 10 slices are currently being produced is equal to: A) $2. B) $10. C) $40. D) $70

A

Assuming that all other factors of production are held constant, marginal product is the change in _____ output resulting from a one-unit change in______. A) total; a variable input B) total; a fixed input C) total; total product D) per unit; a fixed input

A

Cindy just graduated from college and started working at a large accounting firm. Although the firm will match her contributions to a retirement account, Cindy wants to wait several years before participating, since there are so many things she needs to buy right now. What type of irrational behavior does this represent? A) unrealistic expectations about the future B) loss aversion C) mental accounting D) risk aversion

A

In economics, the assumption is that consumers and firms will make choices that maximize the ________ of each activity. A) total net benefit B) total benefit C) sum of total benefit and total cost D) product of total benefit and total cost

A

Marginal cost can be calculated as: A) TC/Q, where TC is total cost and Q is output. B) VC/Q, where VC is variable cost and Q is output. C) the slope of the total cost curve. D) TC/Q, where TC is total cost and Q is output; VC/Q, where VC is variable cost and Q is output; and as the slope of the total cost curve.

A

Sunk costs: A) are not considered in marginal analysis. B) help to determine the optimal quantity of an activity. C) can dramatically increase marginal costs. D) are the same as variable costs.

A

Suppose Eastland College does not have a summer program and could rent out the campus to various summer sports camps for $100,000. The potential revenue of the summer camps represents: A) an implicit cost of capital. B) an explicit cost. C) a total cost. D) a sunk cost.

A

When a cherry orchard in Oregon adds a worker, the total cost of production increases by $24,000. Adding the worker increases total cherry output by 600 pounds. Therefore, the marginal cost of the last pound of cherries produced is: A) $40. B) $19. C) $4,000. D) $24,000.

A

You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a fixed input for the production function at your deli? A) the dining room where customers eat their meals B) the loaves of bread used to make sandwiches C) the cans of tomato sauce used to make soups D) the employees hired to help make the food

A

(Figure and Table: Variable, Fixed, and Total Costs) Look at the figure and table Variable, Fixed, and Total Costs. In the figure, the marginal cost when increasing production from 19 to 36 bushels of wheat is: A) $23.53. B) $11.76. C) $22.22. D) $11.11.

B

(Figure: Marginal Benefits and Marginal Costs) Look at the figure Marginal Benefits and Marginal Costs. As shown, more time spent studying economics adds points to economics scores (MB) but subtracts points from accounting scores (MC). The marginal benefit of studying economics when Claudia studies for 2 hours is _______ points and the marginal cost is ____ points. A) 40; 0 B) 30; 10 C) 20; 20 D) 10; 30

B

(Figure: The Marginal Analysis of Cell Phones) Look at the figure The Marginal Analysis of Cell Phones. You are considering purchasing cell phones for your department. The graph represents your marginal benefit and marginal cost curves. If you consume the fifth cell phone, your net change in total benefit will be equal to: A) $0. B) -$2. C) $2. D) $4.

B

(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the government imposes a $60,000 tax on yachts (collected from the producers), consumers will pay ________ of the tax and producers will pay ________. A) $30,000; $30,000 B) $40,000; $20,000 C) $20,000; $40,000 D) $10,000; $50,000

B

(Figure:Long-Run and Short-Run Average Cost Curves ) Look at the figure Long-Run and Short-Run Average Cost Curves. If a firm is producing at point C on the ATC2 but anticipates increasing output to 225,000 units in the long run, the firm will build a _____ plant and have ________. A) smaller; economies of scale B) smaller; diseconomies of scale C) bigger; economies of scale D) bigger; diseconomies of scale

B

(Table: Cost Data) Look at the table Cost Data, which shows data for a designer purse factory. The average total cost of producing 4 purses is: A) $12.50 B) $47.50 C) $50 D) $82.50

B

If Jakob, who runs a sports jersey assembly factory, knows the marginal cost of the first sports jersey is $21, the marginal cost of the second sports jersey is $40, and the marginal cost of the third jersey is $17, what is the total variable cost of producing three jerseys? A) $26 B) $78 C) $17 D) $61

B

In central Florida, the demand for real estate has been increasing rapidly for years. This reality, in combination with occasional freezes that kill orange trees, has led many orange grove owners to sell their land to real estate developers. Because of the freezes and land demand, the ________ cost of capital is ______ in central Florida's orange groves. A) explicit; decreasing B) implicit; increasing C) implicit; decreasing D) explicit; increasing

B

Janet's poodle grooming salon has a total cost curve expressed by the equation TC = 100 + 3Q2, where Q is the quantity of dogs groomed. Given this expression if Janet grooms 5 dogs, her total costs will be: A) $100. B) $175. C) $225. D) $75.

B

Marginal cost ________ over the range of increasing marginal returns and ________ over the range of diminishing marginal returns. A) increases; decreases B) decreases; increases C) is constant; decreases D) increases; is constant

B

The total product curve: A) shows the relation between output and the quantity of a variable input for varying levels of the fixed input. B) will become flatter as output increases if there are diminishing returns to the variable input. C) will be downward sloping if there are diminishing returns to the variable input. D) will become horizontal when the marginal product of the variable input is constant

B

When all of a firm's inputs are doubled and this results in the firm's level of production more than doubling, a firm is operating: A) on the upward-sloping portion of its LRATC curve. B) on the downward-sloping portion of its LRATC curve. C) at the minimum of its LRATC curve. D) on the upward-sloping portion of its MC curve.

B

(Figure: Short-Run Costs) Look at the figure Short-Run Costs. A is the ________ cost curve. A) average total B) average variable C) marginal D) total

C

(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If the market is originally in equilibrium and the government imposes an excise tax of $0.80 per unit of the good sold, the government's revenue from the tax will be: A) $175. B) $240. C) $105. D) $90.

C

(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the government imposes a $30,000 tax on yachts and collects it from the yacht suppliers, the ______ curve will shift _____ by _____. A) demand; downward; $15,000 B) supply; upward; $15,000 C) supply; upward; $30,000 D) demand; downward; $30,000

C

(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the government imposes a $60,000 tax on yachts (collected from the producers), the price of yachts will rise to ________ and the government will collect tax revenue equal to ________. A) $100,000; $120 million B) $120,000; $90 million C) $140,000; $90 million D) $160,000; $120 million

C

(Table: Production Possibilities) Look at the table Production Possibilities. According to the data in the table, the opportunity cost of 1 computer for ___ is ________. A) the United States; 2 boxes of roses B) Colombia; 1/2 box of roses C) the United States; 1/2 box of roses D) Colombia; 1 box of roses

C

(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor. Given the table, what is the optimal number of pizza slices that should be produced? A) 5 B) 10 C) 15 D) 20

C

A firm finds that its long-run average total costs increase as it produces more output. This firm is experiencing: A) economies of scale. B) constant returns to scale. C) diseconomies of scale. D) a spreading effect.

C

Lucy bought some stock 10 years ago that has been priced at half of her purchase price for the past 5 years. However, Lucy refuses to sell the stock, thinking that if she waits long enough, she will recover her investment. What type of irrational behavior does this represent? A) mental accounting B) bounded rationality C) risk aversion D) loss aversion

C

Suppose that the first four workers generate corresponding total outputs of baby diapers of 200, 350, 450, and 500, respectively. The marginal product of the second worker is: A) 50. B) 100. C) 150. D) 200

C

The "good enough" method of decision making is also called: A) utility-maximizing behavior. B) profit-maximizing behavior. C) bounded rationality. D) irrational decision making.

C

The dormitories of Eastland College are part of its: A) land. B) labor. C) capital. D) explicit costs.

C

The idea of diminishing returns to an input in production suggests that if a local college adds more custodians, the marginal product of labor for the custodial staff will ________. A) increase at an increasing rate B) increase at a decreasing rate C) decrease D) not change

C

To maximize her grade in economics, Stacey should study until: A) her marginal cost of studying begins to increase. B) her marginal benefit of studying begins to decrease. C) her marginal benefit of studying equals her marginal cost of studying. D) her marginal cost of studying reaches zero.

C

(Figure: The Average Total Cost Curve) Look at the figure The Average Total Cost Curve. In the figure, the total cost of producing three pairs of boots is approximately: A) $24. B) $72. C) $75. D) $216

D

(Figure: The Marginal Analysis of Cell Phones) Look at the figure The Marginal Analysis of Cell Phones. You are considering purchasing cell phones for your department. The graph represents your marginal benefit and marginal cost curves. How many cell phones will you consume? A) 1 B) 2 C) 3 D) 4

D

(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the government imposes a $60,000 tax on yachts and collects it from the yacht consumers, the ________ curve will shift ________ by ________. A) supply; upward; $30,000 B) supply; upward; $60,000 C) demand; downward; $30,000 D) demand; downward; $60,000

D

(Figure: The Markets for Melons in Russia) Look at the figure The Market for Melons in Russia. If Russia is trading based on comparative advantage and the world price is D, then Russia: A) has a comparative advantage in the production of melons. B) has a comparative disadvantage in the production of melons. C) has an absolute advantage in the production of melons. D) does not have either an absolute or a comparative advantage in the production of melons.

D

(Table: Cost Data) Look at the table Cost Data, which shows data for a designer purse factory. The average variable cost of producing 4 purses is: A) $190 B) $140 C) $47.50 D) $35

D

(Table: Production Possibilities for the United States and Canada) Look at the table Production Possibilities for the United States and Canada. Both nations can produce cars and lumber. Based on the table, which of the following is true? A) In the United States, the opportunity cost of 1 million cars is 10 million board feet of lumber. B) In the United States, the opportunity cost of 10 million cars is 1 million board feet of lumber. C) In Canada, the opportunity cost of 1 million cars is 6 million board feet of lumber. D) In Canada, the opportunity cost of 1 million cars is 1/6 million board feet of lumber.

D

In economic analysis, the optimal quantity of an activity is the quantity at which: A) marginal benefit exceeds marginal cost by the greatest amount. B) total benefit exceeds total cost by the greatest amount. C) marginal benefit equals marginal cost. D) total benefit exceeds total cost by the greatest amount and marginal benefit equals marginal cost

D

Lauren has 11 people working in her tangerine grove. The marginal product of the eleventh worker equals 13 bushels of tangerines. If she hires a twelfth worker, the marginal product of that worker will equal: A) 14 bushels. B) 15 bushels. C) 12 bushels. D) The answer cannot be determined with the information available.

D

The larger the output, the greater the amount of variable input required to produce additional units. Called the ________ effect, this leads to a ___________. A) spreading; lower average fixed cost. B) spreading; higher average fixed cost. C) diminishing returns; lower average variable cost. D) diminishing returns; higher average variable cost.

D

Wendy sells ice-making machines. She can sell six per week at a price of $2,000. If she charges $2,100, she will sell only five per week. The marginal benefit of selling the sixth ice-making machine is: A) $2,000. B) $2,100. C) $12,000. D) $1,500.

D

(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The government recently levied a $10 tax on the producers of blue jeans. What area or areas in the graph identify consumer and producer surplus after the tax was levied? A) a + b + c B) a + b + c + d + e + f C) d + e + f D) a + f

a + f

(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The government recently levied a $10 tax on the producers of blue jeans. What area or areas in the graph identify tax revenue? A) a + b + c B) b + d C) c + e D) d + e + f

b + d

If Japan levies tariffs on U.S. goods entering Japan, this will tend to: A) benefit both Japanese and U.S. producers. B) damage U.S. producers and benefit Japanese producers. C) benefit U.S. producers and damage Japanese producers. D) damage both Japanese and U.S. producers.

damage both Japanese and U.S. producers.

If the United States placed larger tariffs on all textiles, then: A) domestic producer surplus would increase. B) domestic consumer surplus would increase. C) domestic total surplus would increase. D) domestic producer surplus would decrease.

domestic producer surplus would increase.

In a single year, the Netherlands can raise 100 tons of beef or produce 1,000 boxes of tulips. In the same growing season, Belgium can raise 50 tons of beef or produce 750 boxes of tulips. In autarky the price of beef: A) is higher in the Netherlands than in Belgium. B) is lower in the Netherlands than in Belgium. C) is the same in the Netherlands as in Belgium. D) cannot be determined in either country.

is lower in the Netherlands than in Belgium.

Saudi Arabia has a tremendous comparative advantage in petroleum. Which of the following is a source of this comparative advantage? A) mild temperatures B) large reserves of crude oil C) no opportunity cost associated with oil production D) high tariffs on oil from other nations

large reserves of crude oil

Suppose the government imposes a $10 per month tax on cell phone service. If the demand curve for cell phone service is perfectly inelastic and the supply curve is upward sloping, the price that consumers each month pay for cell phone service will increase by: A) $5. B) less than $10. C) $10. D) $0.

less than $10.

An excise tax that the government collects from the producers of a good: A) shifts the supply curve upward. B) causes a loss of revenue for the government. C) has a similar effect as a tax subsidy. D) shifts the supply curve downward.

shifts the supply curve upward.

Bangladesh exports shirts, the making of which is labor-intensive, to the United States. The likely source of Bangladesh's comparative advantage in shirts is: A) a hotter climate, which makes it possible to produce shirts outdoors, eliminating the need for factory buildings and hence reducing costs. B) superior production technology. C) that in comparison with the United States, Bangladesh is a labor-abundant country. D) the higher labor productivity in Bangladesh.

that in comparison with the United States, Bangladesh is a labor-abundant country.

Since the terrorist attacks of September 11, 2001, the FAA has added a small security fee to every airplane ticket purchased. This is an example of: A) the benefits principle of tax fairness. B) a lump-sum tax. C) the ability-to-pay principle of tax fairness. D) a profits tax.

the benefits principle of tax fairness.

On a production possibility frontier, opportunity cost is: A) the decrease in the output of one good when the output of the other good is increased. B) the rate at which people are willing to exchange goods as determined by demand and supply. C) the dollar cost of the good given up to get another good. D) independent of the slope of the curve.

the decrease in the output of one good when the output of the other good is increased.

Which of the following taxes reflects the ability-to-pay principle? A) the federal income tax B) the payroll tax C) a sales tax on food D) Social Security tax

the federal income tax

France and England both produce wine and clothing under conditions of constant opportunity costs. France will have a comparative advantage in wine production if: A) it can produce more wine than England. B) its labor productivity in wine production is greater than England's. C) the absolute cost of producing wine is lower in France than in England. D) the opportunity cost of wine production is lower in France than in England

the opportunity cost of wine production is lower in France than in England

If labor is abundant in South Africa but capital is scarce, when South Africa opens to trade: A) the prices of labor and capital will rise. B) the prices of labor and capital will fall. C) the price of labor will rise and the price of capital will fall. D) the price of labor will fall and the price of capital will rise.

the price of labor will rise and the price of capital will fall.

Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. Using economic analysis, we would predict that: A) the price of sweaters will increase by $10. B) consumers of sweaters will bear the entire burden of the tax. C) the price of sweaters will increase but by less than $10. D) the price of sweaters will decrease by $10.

the price of sweaters will increase but by less than $10.