ECON 2020 FINAL EXAM - Subset

Consider the demand schedule below for bags: When the price of bags rises from $11 to $13, the price elasticity of demand (in absolute value) is approximately

0.444

Jonathon works at a convenience store and makes note of changes to sales after the price of liquid soap unexpectedly increases by 10%. Based on the cross price elasticity of demand, we can infer that liquid soap and lotion are

1. 0.5 2.

You have been invited to play a 4-hour round of golf that has a value to you of $50. The total price to play the round of gold is $25. The net benefit of the round of golf is $____.

25

Suppose the price of X s $70, the price of Y is $50, and a consumer has income of $700. Which of the following combinations of X and Y will be represented by a point on the consumer's budget constraint?

5 units of X and 7 units of Y

You are a professor of economics at a university. You're been offered the position of serving as department head, which comes with an annual salary that is 8,500.

500

People who need life-saving drugs raise the price, the price effect always dominates and total revenue falls.

A monopolist, such as one selling life-saving drugs, still faces downward-sloping demand curves.

The definition of economics states that it is the study of how

agents choose to allocate scarce resources and the impact of those choices on society

The largest source of revenue for the federal government is

individual income taxes

Which of the following is NOT an example of causation?

Driving without car insurance will lead to getting into an accident

What is the difference between accounting profit and economic profit?

Economic profit only subtracts both explicit and implicit costs from total revenue, while economic profit only subtracts explicit costs.

In a perfectly competitive market, a seller ____ choose to raise the price of its good since all sellers in the market produce ___, so raising the price would result in ____.

cannot ; identical goods ; losing all customers

In the perfectly competitive market, sellers ____ and buyers ____.

cannot charge more than the market price; cannot pay less than the market price

Externalities are called market failures because they

cause markets to overproduce when there is inflation

Suppose your new year resolution is to get back into shape. You are considering various ways of doing this: you can sign up for a gym membership -,-,-,-,-,.

Do a cost benefit analysis to compare alternatives.

Looking at the graph below, at point A, firms experience

economies of scale

When comparing the equilibrium in the lobster market for August and November, the equilibrium quantity is ____ in November than in August, while the equilibrium price is ___.

lower ; higher, lower, or unchanged.

During the process of optimization economists believe that people are considering

the feasibility of a choice, given the information available at the time.

Legal market power is created by ____ and arises due to ____.

the government ; patents.

Now assume that you have a job that pays you $6 per hour. Would you be optimizing to accept the invitation to play golf? To optimize, you should ___ golf.

Play

The supply curve represents

The minimum price sellers are willing to accept to sell an extra unit of a good.

The demand curve shows

how the quantity demanded respmds to changes in the price of the good

An example of a progressive tax is the

income tax

The opportunity cost of an activity is a measure of _____ when you do that activity

what is given up

Tax incidence refers to

who bears the burden of a tax

Suppose Joe has a comparative advantage in making pizzas and Samantha has a comparative advantage in making chocolate cakes.

will ; will

If the terms of trade is 2.5 pizzas for 1 cake, Joe ____ make the trade and Samantha ___ make the trade

will not ; will

Imagine you are a buyer in a double oral auction with a reservation value of $13 and there is a seller asking for $8. If you accept this offer, you will gain _____.

$5

Using the opportunity cost of a pizza column, a terms of trade of ___ cake(s) for 1 pizza would put them in the middle of all possible terms of trade where both would be willing to trade

1.25

The total benefit of the third beer is given bellow. Burgers cost $20 and beers cost $40

10

The graph to the below shows the average total cost (ATC), average variable cost (AVC), marginal cost (MC), and marginal revenue (MR) curves for a firm in a perfectly competitive market. In order to maximize profits this firm should produce approximately ___ units of output

11

Human Capital is the

A and B only

The value of marginal product of labor (VMPL) is

A and C only

Economics is divided into two broad fields of study: microeconomics and macroeconomics. Microeconomics studies ________, while macroeconomics studies ________.

A small piece of the overall economy; the economy as a whole

How do labor-saving technologies differ from labor-complementary technologies?

All of the above

Social surplus is maximized when the

All of the above

Why are there two difference views on the same effect of taxation on labor supply in the United States?

All of the above

How does the labor-leisure trade off determine the supply of labor?

An increase the wage rate is an increase in the opportunity cost of leisure, and can therefore be expected to reduce the amount of leisure one wishes to consume.

Which of the following is not an important determinant of wage inequality within an economy?

Differences in connections to influential people.

Using the graph below, what does area A represt?

Consumer surplus

Which of the following is a cost associated with government intervention in an economic system?

Corruption

Suppose a country has 100 westerners and 100 easterners. A westerner can produce either 6 units of food or 2 units of national defense

Easterners

Suppose this country has decided it wants to produce 60 units of defense. In this case, the country will have more food to consume if the ___ produced these 60 units of defense

Easterners

Which of the following exemplifies a positive question?

How much is the national debt?

Which of the following is a key difference between perfect competition and monopoly?

In perfect competition, no one firm can influence price, but with monopoly, a single seller sets the price.

Which of the following is true regarding the concept of causation?

It describes how one event can bring out change in another.

Which of the following is true regarding an extra dollar spent on the second burger?

It gives more benefit than an extra dollar spent on the second beer.

Consider the following statement: Given that burgers and fries are complementary goods, if the price of fries decreases, the demand for both goods will rise. Is this an accurate statement?

It is somewhat inaccurate. The decrease in the price of fries will increase the quantity demanded (not the demand) for friend. It will however, as the statement claims, increase the demand for burgers.

Which of the following is not an externality?

Jordan has lung cancer from smoking cigarettes

How does a natural monopoly differ from a firm that becomes a monopoly due to network effects?

Natural monopolies result from economies of scale, while network effects come from the benefits to consumers from having many people use a service.

There is a proverb "anything worth doing is worth doing well." Do you think an economist would agree with this proverb?

No, because the marginal cost of extra effort may be greater than the marginal benefit.

Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $90...

No, he should shift consumption towards soft drinks and away from pizza to maximize total benefits

Does the shape of the demand curve differ from the shape of an individual demand curve?

No, they both tend to to be downward-sloping curves.

Is the entire burden of the tax always borne by those on whom it is imposed?

Not necessarily, since the burden of the tax depends on the price elasticity

Economists, anthropology, psychology, sociology, and political science all study human behavior. Economics differs from these other social sciences because it also addresses these three key concepts:

Optimization, equilibrium, and empiricism

The price elasticity of demand shows the sensitivity of consumer's purchases to ___ change in the good's price.

Percentage

Producer surplus is the difference between the ___ and the ____.

Price consumers pay; supply curve

A non-market price imposition is a

Price control

Which of the following is not one of the sources of natural market power?

Production of a luxury good

Which of the following exemplifies a normative question?

Should welfare be repealed?

You should have anticipated this answer because

The Easterners have a comparative advantage in the production of defense

Which of the following is not one of the four major factors that shifts the supply curve when it changes?

The income of consumers

Lets say that you are trying to decide what to do on a Friday at 11 a.m.

The opportunity cost would be sleeping in late, since it was your next best option

Which of the following is NOT one of the five major factors that shift the demand curve when it changes?

The price of the food itself

Many people have argued that an income tax should be "marriage neutral", that ism two people should pay the same total tax whether they are married or they are single. The sum of taxes Cathy and Dylan pay because two people always pay more than one, regardless of income

The tax ben pays because high-income individuals pay higher income taxes.

Which of the following best describes network externalities?

They occur when a product's value increases as more consumers begin to use it.

How do economists distinguish between models that work and those that don't?

They test they models against real-world data.

Which of the following equations calculates the profits of a firm?

Total Revenues - Total Costs

Which of the following is more susceptible to the free-ride problem: fishing in public lake or city - wide pest control?

Use is more susceptible since even those who don't pay taxes still benefit, while fishing in public lakes can charge for a fishing license, so that everyone who goes pays their share

To say that a good has a network effect means that the ___.

Value of the product increases as more people use it.

Lobsters are plentiful and easy to catch in August but scarce and difficult to catch in November.

both supply and demand

When economists speak of deadweight loss, they are referring to _____ in _______ caused by a market distortion.

decrease ; social surplus

Consumer sovereignty suggests that

government should not interfere with consumer choices

The terms of trade at 1 cake for 1 pizza

favors Samantha

Market demand is derived by

fixing the price and adding up the quantities that each buyer demands

In economics, scarcity refers to the situation of

having more wants than the amount of available resources

The cost of defense measures in terms of foregone food production is (3) with a draft than with a volunteer army.

higher

Negative externalities impose an additional cost that:

is not explicitly recognized by the buyers and sellers in the market

In a perfect competitive market, if one seller chooses to charge a price for its goof that is slightly higher than the market place, then it will ______.

lose al or almost all of its customers

Natural market power is created by ___, and arises due to ___.

market forces ; economies of scale

An example of a proportional tax is the

medicare tax

Compensating wages are the wage premiums

paid to attract workers to occupations to otherwise undesirable jobs.

An individual or a firm can internalize an externality by

paying the cost of the externality

Paternalism is the view that

people do not always know what ----

All firms in a perfectly competitive market are said to be

price takers

Market power relates to the ability of sellers to affect ___, and arises because of _____.

prices ; barriers to entry.

The Coase Theorem states that

private bargaining will result in an efficient allocation of resources.

To reduce inequality and poverty in an economy, the government uses a

progressive tax system to find transfer payments

An example of a regressive tax is the

property tax

A mosquito control program in a city is a

public good

Given that there are costs involved with government intervention in an economy, governments still choose to intervene in markets to

reduce inequality

When one of the four major factors changes, causing an increase in supply, the supply curve shifts ____

rightward

To optimize, you ____ become a department head.

should

Social surplus is the

sum of consumer surplus and producer surplus

The government runs a burger surplus when

tax revenue exceeds its spending

Optimization is the process that describes

the choices that people make

A consumer's satisfaction is maximized when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she spent on another good because

the reality of diminishing marginal benefits assures that any shift in consumption towards either good mist necessarily make her worse

Optimization in levels examines _____, while optimization in differences analyzes _______.

total net benefits of alternatives; the change in net benefits.