Econ 101 Final: Miyoung Oh Iowa State

If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise.

quantity; price; decrease

Which of the following is FALSE about the circular-flow diagram?

Money flows from households to firms as households offer factors of production for sale.

In movement along a production possibility frontier, the opportunity cost to society of getting more of one good:

is measured by the amount of the other good that must be given up.

(Table: Wheat and Aluminum) Look at the table Wheat and Aluminum. The United States and Germany can produce both wheat and aluminum. The table shows the maximum annual output combinations of wheat and aluminum that can be produced. Based on the table:

the United States has a comparative advantage in wheat and an absolute advantage in wheat.

The demand for meals at a local Applebee's will shift to the left if:

the Olive Garden offers a 10 percent discount coupon in the local newspaper.

Which of the following is NOT a factor in determining the price elasticity of demand?

the slope of the supply curve

When a tenant in a rent-controlled apartment sublets the apartment to another renter at a rent higher than the price ceiling:

the transaction takes place on a black market.

The table shows five consumers' willingness to pay for one can of diet soda as well as five producers' cost of selling one can of diet soda. The government asks your advice about the effects of an excise tax of $0.40 per can of soda. Assume there are no administrative costs from the tax. How much government revenue does the excise tax create?

$0.80

From the graph below, determine this firm's total loss, assuming AVC < $3 and decide whether you agree that the firm will shut-down the business in the short-run.

$60; disagree

Use the following information to calculate the price elasticity of demand for hotel rooms : if P = $135, Qd = 8600 if P = $165, Qd = 7400 The price elasticity of demand for hotel rooms (by midpoint method) is _____.

0.75

Alicia's Apple Pies is a roadside business. Alicia must pay $9.00 in rent each day. In addition, it costs her $1.00 to produce the first pie of the day, and each subsequent pie costs 50% more to produce than the one before. For example, the second pie costs $1.00 × 1.5 = $1.50 to produce, and so on. The spreading effect dominates the range of output from _____ while the diminishing returns effect dominates the range of output from _____ .

1 to 4; 5 to 6

Use the following to answer the question: Figure. A Supply Curve (Note: horizontal axis for quantity and vertical axis for price of a good) Suppose the market price rises to $30 from $20. The increase in producer surplus (PS) is total ______ : The increase in PS due to new sellers entering the market is _____ and the increase in PS due to existing sellers receiving higher price is ______.

125; 25;100

(Table: Production Possibilities Schedule I) Look at the table Production Possibilities Schedule I. If the economy produces 10 units of capital goods per period, it also can produce at most _____ units of consumer goods per period.

4

Suppose that the supply schedule of Maine lobsters is as follows: Suppose that Maine lobsters can be sold only in the United States. The U.S. demand schedule for Maine lobsters is as follows: Now suppose that Maine lobsters can also be sold in France. The French demand schedule for Maine lobsters is as follows: Now that French consumers can also buy lobsters, the quantity demanded when the price is 25 is equal to ____ pounds. The new equilibrium price of lobsters is ______ per pound, and the new equilibrium quantity of lobsters is _____ pounds. The quantity consumed by U.S. consumers is now _____ pounds.

300; $20; 700; 400

(Table: Prices and Demand) Look at the table Prices and Demand. Professor Dumbledore has a monopoly on magic hats. The marginal cost of producing a hat is $18. Suppose Dumbledore can perfectly price-discriminate. How many hats will he produce?

6

Suppose that the demand for pizza in Ames is given by the following equation: (demand) P = 40 - 4Q; where P is the price of pizza ($) and Q is the quantity of pizza. Further assume that the supply of pizza is given by: (supply) P = Q: Suppose that the City Council believes that the current equilibrium price is too high and passes an ordinance prohibiting anyone from selling pizza for more than $2. What is the new quantity of pizza demanded and sold? Is there a shortage or surplus of pizza?

9.5, 2 pizzas ; a shortage

The accompanying diagram shows the market for cigarettes. The current equilibrium price per pack is $4, and every day 40 million packs of cigarettes are sold. In order to recover some of the health care costs associated with smoking, the government imposes a tax of $2 per pack. This will raise the equilibrium price to $5 per pack and reduce the equilibrium quantity to 30 million packs. The economist working for the tobacco lobby claims that this tax will reduce consumer surplus for smokers by $40 million per day, since 40 million packs now cost $1 more per pack. The economist working for the lobby for sufferers of secondhand smoke argues that this is an enormous overestimate and that the reduction in consumer surplus will be only $30 million per day, since after the imposition of the tax, only 30 million packs of cigarettes will be bought and each of these packs will now cost $1 more. They are both wrong. Why?

A. The economist working for the tobacco lobby is overestimating the change in consumer surplus and the economist working for the secondhand smoke lobby is underestimating the loss of consumer surplus.

Which of the following statements is CORRECT? - Some opportunity costs are zero. -Resource scarcity is not a major concern in the rich countries of the world. -Some very talented, skilled individuals who can do everything better than most people should not specialize in doing any one thing. -An economic situation is in equilibrium when no individual would be better off taking a different action.

An economic situation is in equilibrium when no individual would be better off taking a different action.

The city government is considering two tax proposals: -A lump-sum tax of $300 on each producer of hamburgers. -A tax of $1 per burger, paid by producers of hamburgers. Which of the following options is incorrect?

Average fixed cost will be affected when per-burger tax is imposed.

The accompanying table shows the price and yearly quantity sold of souvenir T-shirts in the town of Crystal Lake according to the average income of the tourists visiting. Using the midpoint method to perform the calculation when the price of a T-shirt is $4, the income elasticity of demand when the average tourist income increases from $20,000 to $30,000 is ___. When the price of a T-shirt is $7, for the same change in income, the income elasticity is ___.

B. 1.25; 1.9

Argentina and Brazil each have 10,000 hours of labor per month. In Argentina, producing one pound coffee requires 2 hours while producing one bottle wine requires 4 hours. In Brazil, producing one pound coffee requires 1 hour when producing one bottle wine requires 5 hours. Which country has an absolute advantage in the production of coffee? Which country has a comparative advantage in the production of wine?

Brazil has an absolute advantage in coffee; Argentina has a comparative advantage in wine

(Figure: Change in Total Surplus) Look at the figure Change in Total Surplus. Which of the following areas represent the change in total surplus when the price falls from P2 to P3?

C and E

In your economics class, each homework problem set is graded on the basis of a maximum score of 100. You have completed 9 out of 10 of the problem sets for the term, and your current average grade is 88. What range of grades for your 10th problem set will raise your overall average? What range will lower your overall average?

C. Any grade for your 10th problem set greater than 88 will raise your overall average; any grade lower than 88 will lower it.

Consider an industry with the demand curve (D) and marginal cost curve (MC) shown in the accompanying diagram. Assume there is no fixed cost. If the industry is a singleprice monopoly, the monopolist's marginal revenue curve would be MR. Which area reflects the deadweight loss to society from singleprice monopoly?

C. Triangle FRH

According to data from the U.S. Department of Energy, sales of the fuel-efficient Toyota Prius hybrid fell from 158,574 vehicles sold in 2008 to 139,682 in 2009. Over the same period, according to data from the U.S. Energy Information Administration, the average price of regular gasoline fell from $3.27 to $2.35 per gallon. Using the midpoint method to perform the calculation, the cross-price elasticity of demand between Toyota Priuses and regular gasoline is _____. Based on this estimate of the cross-price elasticity, the two goods _______.

D. 0.4; are substitutes

You are selling your 1996 Mustang. You have already spent $1000 on repairs. At the last minute, the transmission dies. You can pay $600 to have it repaired, or sell the car "as is." In the following scenario, should you have the transmission repaired? Blue book value (what you could get for the car) is $6500 if transmission works, $5700 if it doesn't

Get the transmission fixed.

Consider a perfectly competitive firm in the short run. Assume that it is sustaining economic losses but continues to produce at the profit-maximizing (loss-minimizing) output. Which statement is FALSE?

Marginal cost is less than average variable cost.

Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in the next Table. Current table shows aggregated demand. The average cost and the marginal cost of production are constant at $2 per tube. Quantity Demanded in Middle Fall (tubes per week) Price per Tube 1 = $8 2 = $7 3 = $6 4 = $5 5 = $4 Quantity Demanded in West Fall (tubes per week) Price per Tube 1 = $5 2 = $4.50 3 = $4 4 = $3.50 5 = $3 Neem can effectively price discriminate charging a higher price to ___ who have the ___ demand for the product.

Middle Fall; less elastic

You are considering to shut-down as your firm is currently having a loss. Fixed costs =$100 Variable costs = $50 Revenue = $75 By comparing the profit that your firm currently makes with the profit when you decide to shut-down, decide whether you would shut-down now in the short-run.

Stay open

Which of the following is an example of a positive statement? -Everyone in the country should be covered by national health insurance. -The federal government pays for 46% of U.S. health care costs. -A high rate of economic growth should be a more important goal for the country than a low rate of unemployment. -The poverty rate should be 4%.

The federal government pays for 46% of U.S. health care costs.

If demand is downward-sloping and supply is upward-sloping, which of the following statements about the effects of an excise tax is INCORRECT?

The lower the elasticity of supply relative to the elasticity of demand, the lower the burden of the tax borne by suppliers.

Suppose Linda and Jack are doing Biology and Economics homework. In one hour, Linda can solve 10 Biology questions and 0 Economics questions, or 20 Economics questions and 0 Biology questions, or any other linear combination lying on the line between those two points. In the same amount of time, Jack can solve 20 Biology questions and 0 Economics questions, or 30 Economics questions and 0 Biology questions, or any other linear combination lying on the line between those two points. Since Linda has a lower opportunity cost of doing Economics questions than Jack, if they work together, Linda will specialize in Economics answers and Jack will specialize in Biology answers. If they were to trade with each other, what is the best answer for the price range (in terms of the number of solved Economics problems) acceptable to both Linda and Jack for a solved Biology question?

The price of 1 Biology answer is between 3/2 and 2 Economics answers.

Choose the statement that explains how the following event affects the equilibrium price and quantity of pizza. The incomes of consumers rise and pizza is an inferior good.

There will be a leftward shift of the demand curve and, as a result, the equilibrium price and quantity of pizza will fall.

For the following situation, determine whether it describes an equilibrium. Many people regularly commute from the suburbs to downtown Pleasantville. (Assume that all people care about is the travel time to work.) Due to traffic congestion, the trip takes 30 minutes when you travel by highway, but only 15 minutes when you go by side streets.

This is not an equilibrium.

The term diminishing returns refers to:

a decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant.

For which of the following would be a best example of things that are not scarce? corn everything air time

air

(Figure: A Firm's Cost Curves) Look at the figure A Firm's Cost Curves. The curve labeled W represents the firm's _____ cost curve.

average total

Ashley bought a new pair of jeans. When she walked out of the store, she thought, "I got such a great deal; I would have paid $40 more for these jeans!" This best represents the concept of:

consumer surplus.

It is a hot day, and Bert is thirsty. Here is the value he places on each bottle of water: Value of first bottle $7 Value of second bottle $5 Value of third bottle $3 Value of fourth bottle $1 Ernie owns a water pump. Because pumping large amounts of water is harder than pumping small amounts, the cost of producing a bottle of water rises as he pumps more. Here is the cost he incurs to produce each bottle of water: Cost of first bottle $1 Cost of second bottle $3 Cost of third bottle $5 Cost of fourth bottle $7 Use Ernie's supply schedule and Bert's demand schedule to find the quantity supplied and quantity demanded at prices of $2, $4, and $6. If Ernie produced and Bert consumed one fewer bottle of water from the equilibrium quantity, total surplus would __________. If Ernie produced and Bert consumed one additional bottle of water from the equilibrium quantity, total surplus would ____________.

decline; decline

Suppose a competitive market has a downward-sloping demand curve and a horizontal supply curve. If the supply curve shifts downward, equilibrium price will _____, equilibrium quantity will _____, consumer surplus will _____, and producer surplus will _____.

decrease; increase; increase; not change

The larger the output, the more variable input required to produce additional units. Called the _____ effect, this leads to a ______ average _____ cost.

diminishing returns; higher; variable

Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, firms will _____ the market, driving the price of haircuts _____ and the profits of individual firms _____.

enter; down; back to zero

Anna is willing to sell her 20-year-old boat, but not for less than $2,300. For Anna, the cost of selling this boat is _____ $2,300.

equal to

Resources are being used efficiently when:

every opportunity to make people better off without making others worse off has been seized.

When marginal cost is BELOW average variable cost, average variable cost must be:

falling.

If firms are making positive economic profits in the short run, then in the long run:

firms will enter the industry.

An input whose quantity CANNOT be changed in the short run is:

fixed.

Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy. Suppose President Chávez wanted to increase his popularity with the citizens of Venezuela and enacted a government policy to reduce the price of gasoline sold at state-owned gas stations to 50% of the previous price. Assuming a downward-sloping demand curve for gasoline, in theory, this policy would result in the quantity of gasoline demanded to be _____ the quantity of gasoline supplied.

greater than

The long-run price elasticity of supply of crude oil is _____ the short-run price elasticity of supply of crude oil.

greater than

A technological advance in the production of automobiles will _____ the _____ automobiles.

increase; supply of

(Figure: Producer Surplus) Look at the figure Producer Surplus. When the price rises from $25 to $35, producer surplus _____ for a total producer surplus of _____.

increases by $30; $60

An agricultural market price support policy establishes a binding price floor, which:

increases the price received by farmers.

A monopolist responds to an increase in marginal cost by _____ price and _____ output.

increasing; decreasing

To minimize deadweight loss, markets where demand is relatively _____ and supply is relatively _____ should be taxed.

inelastic; inelastic

(Table: Johnson's Income and Expenditures) Look at the table Johnson's Income and Expenditures. For Johnson, pizzas are a(n) _____ good.

inferior

A community college charges lower tuition fees to town residents than to nonresidents. This pricing strategy increases the profits of the community college. Using this information, we can conclude that nonresidents must have a _____ demand for attending the community college than residents.

less price-elastic

Suppose the government decides to fight obesity in America by imposing an excise tax based on the saturated fat content of food. The most likely effect of this tax would be to:

lower the profits of ice cream suppliers.

The market for corn in Kansas is considered to be competitive. This means there are _____ buyers and _____ sellers of corn in Kansas.

many; many

(Figure: A Firm's Cost Curves) Look at the figure A Firm's Cost Curves. The curve labeled V represents the firm's _____ cost curve.

marginal

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

market power.

An economy is efficient in production if it is:

not possible to produce more of one good without producing less of another good.

Eastland and Westland produce only two goods, boxes of peaches and boxes of oranges, and this figure shows each nation's production possibility frontier for the two goods. Look at the figure Comparative Advantage. Eastland has a comparative advantage in producing:

oranges only.

The ratio of the percentage change in quantity demanded to the percentage change in price is the _____ elasticity of demand.

price

The most likely reason that the government implements a _____ is because it feels the price is too high for _____.

price ceiling; consumers

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm should:

produce more guidebooks, because the next guidebook produced increases profit by $5.

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P3, the firm will produce quantity _____ and _____ in the short run.

q2; incur a loss

We are forced to make choices because of:

scarcity

Abe starts exercising regularly, and after a few months he can do twice as much of everything. In a single day Abe can now make 10 hamburgers or 8 milkshakes rather than the 5 hamburgers and 4 milkshakes he made in the past. We now know that Abe's production possibility frontier has _____, but his opportunity costs of making milkshakes _____.

shifted right; are unchanged

If steak and potatoes are complements, when the price of steak goes up, the demand curve for potatoes:

shifts to the left.

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is less than P2, the firm will _____ in the short run.

shut down

You own a small deli that sells sandwiches, salads, and soup. Which of the following is an implicit cost of the business?

the job offer you did not accept at a local catering service

The break-even price for a perfectly competitive firm is equal to:

the minimum value of average total cost.

Market structures are categorized by:

the number of firms and whether products are differentiated.

For a student who owns his or her own home and doesn't plan to live in the dorm, the cost of going to college is:

tuition, the cost of books, and forgone income.

Khalil is offered a free ticket to the opera. His opportunity cost of going to the opera is:

whatever Khalil would have done had he not gone to the opera.

An analysis of the effect of excise taxes on markets allows us to conclude that:

whether the tax is levied on consumers or producers, the quantity sold will be the same.

(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, consumer surplus will be reduced by:

$175.

Use the following to answer the question: If $100 tax per ticket is imposed, the deadweight loss is _____ while the tax revenue is _____.

$1,250; $7,500Suppose the government decides to fight obesity in America by imposing an excise tax based on the saturated fat content of food. The most likely effect of this tax would be to:

(Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. When the supply curve shifted from the initial equilibrium, the new intersection of supply and demand has a price of _____ and quantity of 400. This supply shift could have resulted from _____.

$1.50; an improvement in refining technology

Two consumers, Casey and Josey, want cheese-stuffed jalapeno peppers for lunch. Two producers, Cara and Jamie, can provide them. The table shows the consumers' willingness to pay and the producers' costs. Note that consumers and producers in this market are not willing to consume or produce more than four peppers at any price. Total surplus (consumer surplus plus producer surplus) at equilibrium(p=$0.5 and Q=5) is:

$2.1

(Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. The initial equilibrium price and quantity (at intersection of S1 and D) of gasoline are:

$2.50 and 300 gallons.

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity effect of selling the sixth motor home is _______ and the price effect of selling the sixth motor home is _________; so the marginal revenue when she sell sixth unit is _________.

$20,000; -$5,000; $15,000

(Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue, and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the government wanted to regulate Figglenuts-R-Us such that the entire deadweight loss would be eliminated in the short run, it would impose a price ceiling of:

$40

(Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs a natural monopoly firm producing electricity for a small mountain village. The table shows Lenoia's demand and total cost of producing electricity. To maximize profits, Lenoia should charge a price of:

$400.

Which of the following is NOT one of the four principles for understanding individual choice? -"How much" is a decision at the margin. -Resources are scarce. -Overall spending sometimes gets out of line with the economy's productive capacity. -People usually take advantage of opportunities to make themselves better off.

Overall spending sometimes gets out of line with the economy's productive capacity.

Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD: Demand: P=1000-10Q Total Revenue: TR=1000Q-10Q2 Marginal Revenue: MR=1000-20Q Marginal Cost: MC=100+10Q where Q indicates the number of copies sold and P is the price in Ectenian dollars. Find the price and quantity that maximize the company's profit.

P=700 Ectenian dollars; Q=30

Which of the following illustrates the change in demand (i.e., shift of the demand curve)? -When XYZ Telecom (a long-distance telephone service provider) offered reduced rate on weekends, its volume of weekend calling increased sharply. -Consumers buy more personal computers because prices have fallen. -A sharp rise in the price of gasoline leads many commuters to join carpools in order to reduce their gasoline purchases. -People buy more long-stem roses the week of Valentine's Day, even though the prices are higher than at other times during the year.

People buy more long-stem roses the week of Valentine's Day, even though the prices are higher than at other times during the year.

In many European countries high minimum wages have led to high levels of unemployment and underemployment, and two a two-tier labor system. In the formal labor market, workers have good jobs that pay at least the minimum wage. In the informal, or black market for labor, workers have poor jobs and receive less than the minimum wage. Assume that the imposition of the high minimum wage causes a contraction in the economy so that employers in the formal sector cut their production and their demand for workers. Assume also that the workers who cannot get a job paying at least the minimum wage move into the informal labor market where there is no minimum wage. What happens to the size of the informal market for labor as a result of the economic contraction? What happens to the equilibrium wage in the informal labor market?

The equilibrium wage in the informal labor market falls and the quantity of hours transacted increases, as the informal labor market expands.

In class activity, we used the three-step method to analyze the effects of each event on the equilibrium price and quantity of music downloads. Event A: A fall in the price of CDs Event B: Sellers of music downloads negotiate a reduction in the royalties they must pay for each song they sell. Event C: Events A and B both occur. Suppose that Event C occurs (thus, supply increases and demand decreases). What is the most likely effect on price and quantity of music downloads?

The price will decrease, but quantity may increase, decrease, or stay the same.

A student organization is formed on your college campus to protest against the high rent for apartments near campus. This organization is planning a meeting with the dean and president of the college. Which of the following best describes the policy the student organization will fight for?

a price ceiling

Suppose the input costs associated with manufacturing hair replacement treatments decrease over time. This would lead to:

an increase in the supply of such treatments, lower prices, and an increase in the equilibrium quantity.

A resource is anything that:

can be used in production.

Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor. You have high fixed costs due to the quantity of capital used to build the jets, and average cost is decreasing for all levels of demand. In this case, your monopoly would result from:

economies of scale.

(Table: Total Product and Marginal Product) Look at the table Total Product and Marginal Product. Negative marginal returns begin when the _____ worker is added.

eighth

You design websites for local businesses. You charge $200 per website, and currently sell 12 websites per month. Your costs are rising (including the opportunity cost of your time), so you consider raising the price to $250. The law of demand says that you won't sell as many websites if you raise your price. Suppose the price elasticity of demand for your websites estimated by midpoint method is 1.8. Is the demand elastic or inelastic? How many fewer websites would you expect? Will your revenue fall, or might it increase?

elastic, 8, fall

(Figure: The Market for Yachts) Look at the figure The Market for Yachts. A price _____ of _____ will bring the about the same price and output in the market for yachts as would an excise tax of $60,000.

floor; $160,000

Although for smokers the marginal benefit from smoking may exceed the marginal cost of smoking, the negative effects of second-hand smoke may increase the marginal costs of smoking to society to a point where it exceeds that marginal benefit to society. This is an example of:

individual actions whose side effects are not properly taken into account by the market.

A friend of yours is considering two cell phone service providers. Provider A charges $120 per month for the service regardless of the number of phone calls made. Provider B does not have a fixed service fee but instead charges $1 per minute for calls. Your friend's monthly demand for minutes of calling is given by the equation Qd=150-50P, where P is the price of a minute. By comparing the consumer surplus that she would obtain with each provider, which provider would you recommend that your friend choose?

provider A

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4:

there will be economic profits and firms will enter the industry in the long run.