Econ 2030 Exam 2 Fall 2014

Suppose the price elasticity of demand for a good is 0.3 and the price elasticity of supply for the good is 0.2. Suppose further that an excise tax of $2.00 per unit is placed on the good. Everything else held constant, the price the buyers pay for the good after the tax is levied will be _____ than the price they paid prior to the tax. 1)$0.80 higher 2)$1.20 higher 3)$2.00 higher 4)$0.80 lower 5)$1.20 lower

$.80 higher

a non-excludable rival good

common resource- fish in the sea problem: over consumption

What are fixed costs?

costs that do not change and are independent of quantity. They are not explicit

What are variable costs?

costs that vary and depend upon quantity. They are not implicit.

Suppose the supply of automobiles decreases. Everything else held constant, consumer surplus in the market for automobiles will 1)increase. 2)decrease. 3)remain unchanged. 4)be ambiguous

decrease

Suppose the supply of automobiles decreases. Everything else held constant, economic surplus in the market for automobiles will 1)increase. 2)decrease. 3)remain unchanged. 4)be ambiguous

decrease

Suppose, at a given level of output, a firm's average total cost is $42 and its marginal cost is $40. If the firm produces one more unit of output, everything else held constant, its average total cost will 1)increase 2)decrease 3) remain unchanged

decrease

what are implicit costs?

not in pocket costs. What you gave up monetary wise from your old job.

Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's implicit cost of running his store for a year is 1)$75,000. 2)$100,000. 3)$150,000. 4)$175,000. 5)$225,000. 6)$250,000. 7)$325,000

$100,000

Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's explicit cost of running his store for a year is 1)$75,000. 2)$100,000. 3)$150,000. 4)$175,000. 5)$225,000. 6)$250,000. 7)$325,000

$225,000

Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's economic profit from running his store for a year is 1)-$25,000. 2)$25,000. 3)$50,000. 4)$75,000. 5)$125,000. 6)$150,000. 7)$300,000

$25,000

Suppose Natalie's Gummibär Boutique operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing a kilo of Gummi bears is $5.50, average variable cost is $5.00, and marginal revenue is $4.25. At this moment in time, the price of a kilo of Natalie's Gummi bears is 1)greater than $5.50. 2)$5.50. 3)$5.00. 4)$4.25. 5)less than $4.25.

$4.25

formula for % of burden of tax on seller

(Ed/Ed+Es)100

formula for burden of tax on buyer

(Es/Ed+Es)100

Suppose the price elasticity of demand for a good is 0.3 and the price elasticity of supply for the good is 0.2. Suppose further that an excise tax of $2.00 per unit is placed on the good. Everything else held constant, the sellers will bear _____ percent of the burden of the tax. 1)0 2)20 3)30 4)40 5)60 6)100

60

Monopoly Case 3

ATC>P≥AVC

Perfect competition Case 3

ATC>P≥AVC Equilibrium Q*>0 Profit<0 Days are numbered

How do you find economic profit?

Acct profit-implicit costs

How do you find average fixed cost?

FC/Q

With the maximizing rule, what is true?

MR=MC

Monopoly Case 4

P<ATC: Q*0

Perfect competition Case 4

P<AVC Equilibrium Q*=0 Profit<0 Should shut down immediately

Monopoly Case 2

P=ATC

Perfect competition Case 2

P=ATC Equilibrium Q*>0 Profit=0

In a perfect competition, what three things are equal?

P=MR=MC

Monopoly Case 1

P>ATC

Perfect competition Case 1

P>ATC Equilibrium Q*>0 Profit>0

In a monopoly, the profit maximizing rule:

Produce Q* where MR=MC so P>(MR=MC)

What is profit equal to?

Profit=(P-ATC)Q

An e-book is similar to a physically published book in that it is _____, but is also similar to national defense in that it is _____. 1)rival in consumption; nonexcludable 2)nonrival in consumption; excludable 3)excludable; nonrival in consumption 4)nonexcludable; rival in consumption

Rival in consumption; no excludable

How do you find average total cost?

TC/Q=AFC+AVC

How do you find accounting profit?

Total revenue- explicit costs

How do you find average variable cost?

VC/Q

an excludable non-rival good

artificially scarce goods- they are under produced b/c it is profitable to under produce them

Suppose the supply of automobiles decreases. Everything else held constant, producer surplus in the market for automobiles will 1)increase. 2)decrease. 3)remain unchanged. 4)be ambiguous

be ambiguous

Suppose, at a given point in time, Tammy's Tea Room is operating in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing tea is $13, average variable cost is $9, and price is $11. Over time, everything else held constant, the number of sellers in this market will _____. 1)increase. 2)decrease. 3)remain unchanged

decrease

Suppose Petra's Plantain Plantation sells plantains in a perfectly competitive market. Suppose further that at her current level of production, Petra has marginal costs equal to $2.50 per kilo. If the market price of plantains is $2.25 per kilo, it can be concluded with certainty that Petra's profits are 1)positive. 2)negative. 3)increasing. 4)decreasing

decreasing

Sellers will bear the entire burden of an excise tax if demand is perfectly _____. 1)elastic 2)inelastic

elastic

Answer true or false to the following statement. If a non-price discriminating monopolist is maximizing its profits, we know that it has equated its marginal cost with the market price. 1)True 2)False

false

Consider the following online offer. "Get 30% off all regularly priced items + Free Shipping on all orders over $50. Coupon Code: SHIMMER." This offer is an example of _____-degree price discrimination. 1)First 2)Second 3)third

first

Price discrimination by person AND quantity

first car dealership

If the price a firm charges in a perfectly competitive market is greater than its average total cost, then the firm is earning an economic profit _____ zero. 1) greater than 2)less than 3) equal to

greater than

a rivalrous good

if one person is consuming it, another person cannot consume the exact same good at the exact same time. A cup of coffee

Suppose, at a given point in time, Tammy's Tea Room is operating in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing tea is $13, average variable cost is $9, and price is $11. Over time, everything else held constant, the market price of tea will _____. 1)increase. 2)decrease. 3)remain unchanged

increase

Suppose, at a given point in time, Wanda's Wig Warehouse, a non-price discriminating monopolist, is producing at a level of output where marginal revenue is greater than marginal cost. Everything else held constant, Wanda could increase her firm's profits by _____ the quantity of wigs she produces and _____ the price she charges for them. 1)increasing; increasing 2)increasing; decreasing 3)decreasing; increasing 4)decreasing; decreasing 5)not changing; not changing

increase, decrease

"Buy two, get one free" is an example of second-degree price discrimination. For this pricing scheme to be successful for the firm, the customers who buy only one unit of the good must be relatively more price _____ in their demand than the customers who buy two units. 1)elastic 2)inelastic

inelastic

Suppose Natalie's Gummibär Boutique operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing a kilo of Gummi bears is $5.50, average variable cost is $5.00, and marginal revenue is $4.25. At this moment in time, Natalie is earning an economic profit _____ zero. 1)greater than 2)equal to 3)less than

less than

Suppose Michelle's Mitten Mill operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing mittens is $16, average variable cost is $14, and marginal cost is $18. Michelle s hould 1)shut down immediately. 2)continue to produce in the short run since she is minimizing her losses. 3)maintain her current level of production since she is earning a positive economic profit. 4)increase production since it will increase her economic profit. 5)decrease production since it will increase her economic profit.

maintain her current level of production since she is earning a positive econ profit

a nonrivalrous good

multiple consumers of exactly the same serice at the exact same time a class lecture

Suppose Valerie is a non-price discriminating monopolist producing violas and is producing her profit-maximizing level of output. Suppose further that at her current level of output, Valerie's average total cost is $2000, her average variable cost is $1600, and her marginal cost is $2000. Valerie's economic profit is _____ in the short run, everything else held constant. 1)negative 2)zero 3)positive 4)ambiguous

positive

Suppose a profit-maximizing firm is earning positive economic profits at its current level of output. Everything else held constant, the firm's accounting profits are 1)positive. 2)negative. 3)normal. 4)ambiguous

positive

The flu vaccine has a _____ externality associated with its consumption. In the absence of government intervention, the market equilibrium quantity of flu vaccine transacted will be _____ the socially optimal quantity. 1)negative; less than 2)negative; more than 3)negative; the same as 4)positive; less than 5)positive; more than 6)positive; the same as

positive, less than

an excludable rival good

private good that the market produces efficiently

a non-excludable non-rival good

public goods- national defense problem: under produced, no incentive b/c you can't force people to pay for it

Price discrimination by quantity NOT person

second buy 2 get 1 free

what are explicit costs?

the out of pocket costs

an excludable good

they can exclude you by forcing you to pay for it

a nonexcludable good

they can, but they do not have to force you to pay

Price discrimination by person NOT quantity

third senior citizen discount

Answer true or false to the following statement. The difference between the price buyers pay for a good and the price sellers receive from selling it is the amount of the tax. 1)True 2)False

true