Econ 3101 Quizzes 7-9

Quiz 7, #3 If the government establishes a price ceiling of $1.00, the resulting deadweight loss will be: - $1.50 - $300 - $600 - $200 - $150

$150

Quiz 7, #14 Because of the policy, consumer surplus fell by: - $12,500 - $25,000 - $10 - $20 - $45,000

$25,000

A monopolist has set her level of output to maximize her profit. The firm's marginal revenue is $20, and the price elasticity of demand is -2.0. The firm's profit maximizing price is approximately: - $0 - $10 - $40 - $20 - This problem cannot be answered without knowing the marginal cost

$40

Maui Macadamia Inc. has a monopoly in the macadamia nut industry. The demand curve, marginal revenue, total cost, and marginal cost curve for macadamia nuts are given as follows: P = 360 - 4Q MR = 360 - 8Q MC = 4Q What is the maximum amount that Maui Macadamia would be willing to spend in order to maintain its monopoly through rent seeking? - $0 - $5,400 - $10,800 - $1,800

$5,400

Blu-Rays can be produced at a constant marginal cost of $5 per disk, and Superhero Studios is releasing the Blu-Rays for its last two major films. The Blu-Ray for Obscure-Man is priced at $20 per disk, and the Blu-Ray for Team-Up Flick 17: The Final Chapter, Part 1 is priced at $30 per disk. What are the price elasticities of demand for these movies? - -1.33 and -1.2 respectively - -0.75 and -5/6 respectively - Both equal -1.2 - -1.33 and -2 respectively

-1.33 and -1.2 respectively

Your local grocery store offers a coupon that reduces the price of milk during the coming week. The regular retail price of milk in the store is $3.00 per gallon, and the coupon price is $2.00 per gallon for the next week. If the store maximizes profits and the price elasticity of demand for milk is -2 for coupon users, what is the price elasticity of demand for non-users? A) -0.67 B) -1.0 C) -1.5 D) We do not have enough information to answer the question.

-1.5

The market demand and supply functions for alcohol and Major League Baseball games are: Q(D) = 10 - 0.04P Q(S) = 3.8P - 2 Suppose there is a proposal to increase the tax on alcohol sold at MLB games. What percentage of the burden of the tax will fall on producers?

1

There were initially two satellite radio providers in the U.S. market, Sirius and XM Radio. The firms merged to form one firm, and the federal government did not challenge the merger. Although the merger created a single seller in this market, the existence of a monopoly may not have much impact on U.S. consumers. Which of the following statements are plausible reasons for the limited impact of the merger? - There are very large fixed costs in providing satellite radio, and the industry may be a natural monopoly. One seller may be able to operate at lower cost than two sellers. - Although there will only be one seller of satellite radio, there are other forms of radio broadcasts available to U.S. consumers and demand for satellite radio may be relatively elastic. - The merged firm will operate at higher capacity and may be able to reduce costs through economies of scale and perhaps learning-by-doing, which will benefit U.S. consumers - All of the above

All of the above

Which of the following is NOT true for monopoly? - The monopolist's demand curve is the same as the market demand curve - The profit maximizing output is the one at which marginal revenue and marginal costs are equal - The profit maximizing output is the one at which the difference between total revenue and total cost is largest - At the profit maximizing output, price equals marginal cost - Average revenue equals price

At the profit maximizing output, price equals marginal cost

Which of the following is not an advantage of the Earned Income Tax Credit (EITC) over a minimum wage? - More targeted to low-income households - Does not incentivize employers to substitute capital for labor - Does not generate unemployment - Benefits arrive once a year

Benefits arrive once a year

Internet service in the local market is supplied by XFoli8 Internet Service. The demand is P=65 - 0.01Q. The marginal cost function is MC = 5 + 0.01Q. If XFoli8 practices first-degree price discrimination, what are consumer surplus and producer surplus in this market? Does market power and first-degree price discrimination result in reduced societal welfare?

CS = 0 PS = 90,000 No

Zinc Communications developed a new type of cellular telephone that has a three-dimensional (3-D) screen. The company holds a patent on this technology, so they are the only seller of the 3-D phone when it is introduced. Over time, other companies introduce phones that are similar but not identical (i.e., they do not violate the patent held by Zinc). What happens to the demand for 3-D phones facing Zinc and to the profit-maximizing price for the 3-D phone as these similar products enter the market? - Demand becomes less elastic, price increases - Demand becomes less elastic, price declines - Demand becomes more elastic, price declines - Demand becomes more elastic, price increases

Demand becomes more elastic, price declines

Where Es is the elasticity of supply and Ed is the own price elasticity of demand, the fraction of the tax passed on to the consumers in the form of higher prices is: - Ed/Es - Es/(Ed-Es) - Ed/(Ed-Es) - Ed/(Es-Ed) - Es/(Es-Ed)

Es/(Es-Ed)

Which of the following statements about natural monopolies is true? - For natural monopolies, marginal cost is always below average cost - For natural monopolies, average cost is always increasing - Natural monopolies cannot be regulated - Natural monopolies are only found in the markets for natural resources (like crude oil and coal)

For natural monopolies, average cost is always increasing

Suppose your neighbor likes to repair motorcycles in his front yard during evenings and on weekends, and he earns $400 per week from this work. However, the sight of piles of greasy motorcycle parts and the additional noise and traffic caused by his customers reduces your value of living in this neighborhood by $300 per week. If you have a right to live in peace and quiet, how can you achieve the efficient outcome? - He pays you at least $400 to allow his home business - He pays you some value between $0 and $100 to allow his home business - He pays you some value between $300 and $400 to allow his home business - He cannot afford to pay you enough money to allow him to work on motorcycles

He pays you some value between $300 and $400 to allow his home business

Consider the following statements when answering this question: I. When a competitive industry's supply curve is perfectly elastic, then the sole beneficiaries of a reduction in input prices are consumers II. Even in competitive markets firms have no incentive to control cost, as they can always pass on cost increases to consumers - I and II are true - I is true, and II is false - I and II are false - I is false, and II is true

I is true, and II is false

Consider the following statements when answering this question: I. Employers are always hurt by minimum wage laws II. Workers always benefit from minimum wage laws - I is true, and II is false - I and II are false - I and II are true - I is false, and II is true

I is true, and II is false

Use the following two statements to answer this question: I. For a monopolist, at every output level, average revenue is equal to price II. For a monopolist, at every output level, marginal revenue is equal to price - Statements I and II could either be true or false depending upon demand - Both I and II are false - I is false, and II is true - Both I and II are true - I is true, and II is false

I is true, and II is false

A carbon tax is one policy proposal for addressing numerous health and environmental externalities. Which is not true? - A lump sum rebate or reduction in other taxes would help offset the distributional impact of a carbon tax - If the carbon tax is set too high, it could shrink total surplus below the starting (inefficient) level - If the carbon tax is set too low, it could lead to increased environmental damage - It is a more general approach to addressing the negative externality of carbon production than a gas tax or cap-n-trade

If the carbon tax is set too low, it could lead to increased environmental damage

A plastics factory emits water pollutants into a nearby river. The marginal private cost of producing plastics is constant, the marginal external cost of the pollutants increases with the quantity of plastics, and the demand for plastics is downward sloping. What happens to the socially optimal level of output and market price if the marginal external cost curve shifts upward? - Optimal price and quantity decline - Optimal price increases, optimal quantity remains unchanged - Optimal price increases, optimal quantity decreases - Optimal price and quantity decrease

Optimal price increases, optimal quantity decreases

Why is there a deadweight loss associated with subsidy payments? - The subsidy payment does not distort quantities in the market, but the government cost exceeds consumer willingness to pay for the quantity demanded - There is no deadweight loss from a subsidy - Quantity supplied exceeds the equilibrium amount, and consumer willingness to pay for these additional units is smaller than the marginal cost of producing them - Quantity supplied is less than the equilibrium amount, so consumers and producers lose surplus value on those units that are no longer produced

Quantity supplied exceeds the equilibrium amount, and consumer willingness to pay for these additional units is smaller than the marginal cost of producing them

A monopolist has determined that at the current level of output, the price elasticity of demand is -0.15. Which of the following statements is true? - The firm should cut output - This is typical for a monopolist; output should not be altered - The firm should increase output - None of the above is necessarily correct

The firm should cut output

Politicians have reintroduced a tax on yachts to help pay for government programs. Which of the following is true? - The burden of this tax will fall entirely on yacht consumers - The burden of this tax will fall entirely on yacht manufacturers - The sale of yachts will decrease - The profit of yacht manufacturers will increase

The sale of yachts will decrease

Given that MEC(q) = 2q^2, what can be inferred about the total cost of pollution as output increases? - The total cost of pollution is increasing. - The total cost of pollution is positive. - The total cost of pollution is growing at a positive rate. - The total cost of pollution is growing at an increasing rate. - The total cost of pollution is changing.

The total cost of pollution is growing at an increasing rate

Quiz 8, #18 - Yes, she should charge $13 for the bundle - No, she should charge $8 for each product - Yes, she should charge $14 for the bundle - No, she should charge $5 for each product

Yes, she should charge $13 for the bundle

Loud music from a neighbor's party is: - a positive externality whether or not you like it - a negative externality if you like the music, and a positive externality if you don't - a negative externality whether or not you like it - not an externality - a positive externality if you like the music, and a negative externality if you don't

a positive externality if you like the music, and a negative externality if you don't

Quiz 7, #20 When the minimum imposed price is P(sub 2), area A is: - the revenue that producers lose as a result of the imposed price - a deadweight loss associated with the higher than equilibrium price - a transfer of consumer surplus to producer surplus - all of the above

a transfer of consumer surplus to producer surplus

A monopolist faces the following demand curve and total cost curves: Q = 200 - 2P TC = 5Q a) What is the slope of the marginal revenue curve b) What is the profit maximizing output? c) What is the monopoly price? d) What is the monopolist's profit?

a) -1 b) 95 c) 52.5 d) 4512.5

The most popular state park in the Craggy Mountains recently reached the point where a common property resources problem arose - too many people hunted for wild boar each season. The boar population became over hunted and was in peril of extinction. An economist at the local university studied the problem for the park management and estimated the following cost and revenue relationships. Demand: P = 10 - 0.008Q MEC = 1 + 0.007Q MPC = 1 + 0.001Q The variable Q represents the # of boars killed each season and price P is in hundreds ($) a) Determine the equilibrium number of boars killed per season, when there is unlimited access to the park b) What is the efficient quantity of boars hunted per season? c) Determine the per boar fee that must be charged to reduce the harvest to the efficient level d) Determine the social cost (DWL) of unlimited hunting of the boar

a) 1000 b) 500 c) 4.5 d) 1000

The local community is considering two options to raise money to finance a new football stadium. The first option is to institute a per unit tax on restaurant meals $2.00. The market demand and supply functions for restaurant meals are: Q(D) = 80,000 - 1000P Q(S) = 19,000P - 220,000 a) Calculate consumer and producer surplus with the per unit tax The second option the community is considering implementing is an income tax. If an income tax is implemented, the new demand for restaurant meals is: Q(D) = 79,000 - 1000P b) Calculate the level of consumer and producer surplus in the restaurant market. c) Which of the two options will reduce the sum of consumer and producer surplus the least?

a) 1990805, 104779 b) 2051201, 107284 c) income

Hexxus Co. has a monopoly in oil refinement in the local market. The demand for Hexxus oil is P = 75-Q and the MC = 0.5Q. In the refinement of oil, Hexxus Co. emits pollution that has the marginal external cost function MEC(Q) = 25. a) What level of output will Hexxus Co. select to maximize profits? b) What is the marginal social cost of Hexxus Co. profit maximizing outfit? c) What do consumers pay for Hexxus Co.'s refined oil? d) What is the efficient level of output? e) If the local government charges Hexxus Co. a pollution fee for each unit of oil they refine, will the resulting level of production be closer or further from the optimum level of production?

a) 30 b) 40 c) 45 d) 20 e) closer

The elected officials in a university town are concerned about the "exploitative" rents being charged to college students. The town council is contemplating the imposition of a $350 per month rent ceiling on apartments in the city. An economist at the university estimates the demand and supply curves as: Q(D) = 5600 - 8P Q(S) = -400 + 4P Where P = monthly rent and Q = number of apartments available for rent. For purposes of this analysis, apartments can be treated as identical. a) What is the equilibrium price and quantity that would prevail without the price ceiling? b) Calculate producer and consumer surplus at this equilibrium. c) What quantity will eventually be available if the rent ceiling is imposed? d) What is the new consumer surplus? What is the new producer surplus?

a) 500, 1600 b) 320000, 160000 c) 1000 d) 287500, 125000

There are two types of consumers of Sony PlayStation video game consoles. The first type of consumer is highly eager to purchase the newest game consoles (early adopters). Their inverse demand is: P = 600 - 0.01Q(sub e) After the first quarter, the new PlayStations are on the market, early adopter demand goes to zero at any price. The second type of consumer is more sensitive to price and will be the same one quarter after the consoles are on the market (late adopters). Their inverse demand is: P = 300 - 0.01Q(sub l) The marginal cost to the manufacturer is constant at $100. a) If Sony initially sets the system price at $400, calculate their producer surplus b) Do any second type consumers purchase the new PlayStations at the initial release? c) Sometimes after the initial release, the manufacturer lowers the price to $200. If only late adopters purchase the console at this later date, calculate producer surplus from these sales.

a) 6,000,000 b) no c) 1,000,000

The market for paper in a particular region has the supply and demand curves: Q(D) = 160,000 - 2,000P Q(S) = -40,000 + 2,000P Where Q is measured in hundred-pound lots, and P is price per hundred-pound lot. There is currently no attempt to regulate the dumping of effluent into streams and rivers by the paper mills. As a result, dumping is widespread. The marginal external cost associated with the paper production is given by the expression: MEC = 0.0002Q a) Determine the output quantity and price that would be established by profit-maximizing firms b) Determine the efficient output quantity and price c) Determine the cost to society (DWL) of firms producing at the profit maximizing quantity rather than at the efficient output

a) 60000, 50 b) 50000, 55 c) 60000

The local zoo has hired you to assist them in setting admission prices. The zoo's managers recognize that there are two distinct demand curves for zoo admission. One demand curve applies to those ages 12 to 64, while the other is for children and senior citizens. The two demand curves are: P(adults) = 9.6 - 0.08Q P(children, seniors) = 4 - 0.05Q a) If the zoo decides to price discriminate, what are the profit maximizing price and quantity for adults? What is the total revenue in this sub-market? b) What are the profit maximizing profit and quantity for children/seniors? What is the total revenue in this sub-market? c) What is the elasticity of demand for adults at the price and quantity calculated? What is the elasticity of demand for children/seniors at the price and quantity calculated?

a) P=4.8, Q=60, TR=288 b) P=2, Q=40, TR=80 c) Ed(adults)= -1.005, Ed(children/seniors)= -1

Import tariffs generally result in: - more producer surplus for domestic producers - a deadweight loss - higher domestic prices - less consumer surplus - all of the above

all of the above

Which of the following is NOT a public good? - books in a public library - clean air - national defense - public fireworks display

books in a public library

At the profit-maximizing level of output, demand is: - unit elastic - completely inelastic - elastic, but not infinitely elastic - inelastic, but not completely inelastic - infinitely elastic

elastic, but not infinitely elastic

Under perfect price discrimination, consumer surplus: - equals zero - is maximized - is greater than zero - is less than zero

equals zero

The provision of an education in public school is: - nonexclusive and non-rival - a public good, regardless of exclusivity and rivalness - exclusive and on-rival - nonexclusive and rival - exclusive and rival

exclusive and rival

Quiz 7, #16 A specific tax will be imposed on a good. The supply and demand curves for the good are shown in the diagram below. Given the information, the burden of the tax: - falls mostly on producers - falls mostly on consumers - cannot be determined without more information on the price elasticities of supply and demand - is shared about evenly between consumers and producers

falls mostly on consumers

The presence of pollution in the dry cleaning industry leads in the long run to dynamic inefficiencies because - people will buy fewer clothes that need dry cleaning than they otherwise would have - firms whose average private cost is less than price will stay in (or enter) the dry cleaning industry even though their average social cost exceeds price - firms whose average private cost exceeds the price will exit (or fail to enter) the dry cleaning industry even though their average social cost is less than price - firms will be induced to leave the industry because of artificially high costs - people will develop substitutes for dry cleaning that are wasteful

firms whose average private cost is less than price will stay in (or enter) the dry cleaning industry even though their average social cost exceeds price

Suppose the private marginal cost of pumping water from an aquifer remains constant as the quantity of water pumped increases, and the marginal social cost is upward sloping. If the demand for water shifts to the right as population increases, then the amount of water pumped based only on private costs _____ and the social cost of the common property resource ____. - decreases, increases - increases, increases - decreases, decreases - increases, decreases

increases, increases

If a monopolist's profits were taxed away and redistributed to its consumers, - inefficiency would remain because output would be lower than under competitive conditions - efficiency would be obtained because output would be increased and profits removed - efficiency would be obtained because output would be increased to the competitive level - inefficiency would remain, but not because output would be lower than under competitive conditions

inefficiency would remain because output would be lower than under competitive conditions

The burden of a tax per unit of output will fall heavily on consumers when demand is relatively ________ and supply is relatively ________. - inelastic, inelastic - inelastic, elastic - elastic, inelastic - elastic, elastic

inelastic, elastic

The ______ elastic a firm's demand curve, the greater its ______. - less, output - more, monopoly power - less, monopoly power - more, costs

less, monopoly power

Price ceilings: - always increase consumer surplus - may decrease consumer surplus if demand is sufficiently inelastic - always decrease consumer surplus - cause quantity to be higher than in the market equilibrium - may decrease consumer surplus if demand is sufficiently elastic

may decrease consumer surplus if demand is sufficiently inelastic

When firms participate in group health insurance for all employees, it: - raises rates for unhealthy people - raises rates for everyone, because it brings unhealthy people into the pool - may lower rates for all people to the extent that it keeps healthy people in the pool - increases the amount of information available to insurers about the population - prevents unhealthy people from "selecting out," to the detriment of healthy people

may lower rates for all people to the extent that it keeps healthy people in the pool

Traditionally, the federal government provides disaster relief funds to flood victims so that they can rebuild their homes after a major flood. However, the government has recently denied requests to rebuild some homes that were situated in flood-prone areas. This action represents an attempt to ____ the moral hazard problem associated with building private homes in risky areas. - legalize - enhance - support - mitigate

mitigate

When the government imposes a specific tax per unit on a product, changes in consumer surplus are ___ and changes in producer surplus are ___. - negative, positive - negative, negative - positive, negative - positive, positive

negative, negative

When the market price is held above the competitive level, the deadweight loss is composed of: - producer and consumer surplus losses associated with units that used to be trade on the market but are no longer exchanged - there is no deadweight loss if the government uses a price floor policy to increase the price - producer surplus losses associated with units that used to be traded on the market but are no longer exchanged - consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged

producer and consumer surplus losses associated with units that used to be trade on the market but are no longer exchanged

An effective price ceiling causes a loss of: - producer surplus only - producer surplus for certain and possibly consumer surplus as well - consumer surplus for certain and possibly producer surplus as well - neither producer nor consumer surplus - consumer surplus only

producer surplus for certain and possibly consumer surplus as well

Julia is a 28-year-old nonsmoking, non-drinking female of normal weight. Because of adverse selection in health insurance, - she will be charged less for her premiums than people who are higher risk - she is less likely to buy health insurance than the average person, because policy premiums are based on expected medical expenditures of people who are less healthy than she is - when she gets health insurance, she will be less likely to take care of herself - she is more likely than the average person to buy health insurance, because she is more likely to be offered it - she must get health insurance early in life, and is likely to lose health insurance if she smokes, drinks to excess, or gains weight

she is less likely to buy health insurance than the average person, because policy premiums are based on expected medical expenditures of people who are less healthy than she is

Which is not an example of how innovation and technology can help address market failures? - product warranties / guarantees - snapchat / instagram filters - online customer reviews - EZpay tolls and dynamic pricing

snapchat / instagram filters

Quiz 8, #13 In moving from the competitive level of output and price to the monopoly level of output and price, the monopolist is able to add to producer surplus: - the area BCEF less the area GFH - the area BCEF - the area BCEH - the area BCEH less the area GFH - none of the above

the area BCEF less the area GFH

Consumer surplus measures: - the benefit that consumers receive from a good or service beyond what they pay - the extra amount that a consumer must pay to obtain a marginal unit of a good or service - gain or loss to consumers from price fixing - the excess demand that consumers have when a price ceiling holds prices below their equilibrium

the benefit that consumers receive from a good or service beyond what they pay

Quiz 9, #9 - the outcome will be less efficient than if the factory is given the right to use the water as it sees fit - the outcome will be more efficient than if the factory is given the right to use the water as it sees fit - the factory will be forced to shut down - the efficient outcome will occur no matter who is given which property right, and the individual gains will be the same in each case - the efficient outcome will occur no matter who is given which property right, but how that maximum gain is split will be determined during bargaining

the efficient outcome will occur no matter who is given which property right, but how that maximum gain is split will be determined during bargaining

When new technologies make cleaner production possible, - the price of transferable permits falls - the quantity of transferable permits falls - the price of transferable permits rises - emissions fees fall - emissions fees rise

the price of transferable permits falls

The problem of adverse selection in insurance results in a situation in which: - people choose too little coverage because they do not understand the complex information in the policies - healthy people become more likely to buy insurance than unhealthy people, which drives premiums up, which drives even more unhealthy people away from the market even though they are the ones who need it most - people choose too much coverage because they do not understand the complex information in the policies - unhealthy people become more likely to buy insurance than healthy people, which drives premiums up, which drives even more healthy people away from the market - people choose inappropriate or inadequate coverage because they do not understand the complex information in the policies

unhealthy people become more likely to buy insurance than healthy people, which drives premiums up, which drives even more healthy people away from the market

When there are externalities, economic efficiency can be achieved without government intervention: - when the externality affects only a few parties and property rights are not well defined - when the externality affects many people and property rights are well defined - when the externality affects only a few parties and property rights are well defined - at no time - when the externality affects many people and property rights are not well defined

when the externality affects only a few parties and property rights are well defined