econ final exam questions

Which of the following is an example of a quota?

A government limits the amount of a product that can be sold in a market.

What conditions must be met for private bargaining to be effective in resolving an externality?

Bargaining costs must be low, and property rights must be clear.

How does marginal revenue compare to price for a seller with market power?

Beyond the first unit sold, marginal revenue is below price.

A hurricane is expected to hit the Carolinas. Why might the prices of batteries, candles, and bottled water rise?

Buyers will flock to purchase these items, and the excess demand will cause prices to rise.

Grapes become more expensive in the market. Which of the following can explain the increase in price?

Grape production is the same, but wine production has gone up, which requires more grapes.

What is the impact of higher wages on labor supply according to the income effect?

Leisure is more attractive.

(Figure: Producer Surplus II) Look at the figure Producer Surplus II. At a price of P2, producer surplus equals the area:

P2M0.

Which of the following claims reflects normative analysis?

The minimum wage should be higher so that workers earn a living wage.

Paper producers can manufacture both printing and drawing paper. What effect would rising prices for printing paper have on the market for drawing paper?

The supply of drawing paper will decrease.

Which of the following is FALSE?

When sellers exit an industry, market power will fall for the remaining sellers.

Suppose that you have a pumpkin stall at a farmer's market, and the Halloween season arrives. You know that your customers want to buy many pumpkins to carve into jack-o-lanterns. Which of the following is a likely result of this scenario?

You can charge a higher price per pumpkin and will sell more.

Under what type of strategy will a player cooperate if other players have cooperated in all previous rounds but defect if any player ever defects?

a Grim Trigger strategy

Workers on the night shift at a factory earn more per hour than workers on the day shift, although their human capital and productivity are the same. This is an example of:

a compensating differential.

Joachim produces and sells baskets. His marginal cost for one basket is $10, and his average cost is $7. He gains producer surplus every time that he sells a basket at a price:

aboe $10

A binding price ceiling is:

always below the equilibrium price.

For normal goods

an increase in consumer income will lead to a rise in their demand.

People gain consumer surplus when they purchase an item:

at a price below the value of the benefit they receive from the item.

Kathleen Alvarado is binge-watching her favorite show on Netflix. She is trying to decide how many more episodes to watch. Kathleen should continue watching episodes unless the marginal

benefit of watching another episode is equal to the marginal cost.

To get maximum output, you should allocate each task to the person who:

can do the task with the lowest opportunity cost.

A price-taker is a seller that:

charges the current market price for its product.

What type of good is nonrival and excludable?

club goods

Free entry into a market tends to cause _____ to disappear.

desirable opportunities

Which of the following are correct about fixed costs?(i) They do not change with the level of production in the short run.(ii) They include variable costs.(iii) They are present even when the firm is producing zero units.(iv) They are irrelevant to marginal cost.

i, ii, iii

Frank is a barley farmer in a perfectly competitive market. The market price of barley is $250 per ton. If Frank charges $245 per ton, he will

lower his profitability by $5 per ton.

Compared to other high income countries, the U.S. has ______inequality.

more

A higher Gini coefficient means that a country has _________

more inequality

Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are

normal goods

By contrast with a market that produces the socially optimal output, a market with negative externalities will:

overproduce

Your landscaping company uses labor and shovels. The price of shovels falls, and this _____ your demand for labor because labor and shovels are _____.

raises; complements

Diminishing marginal product leads to

rising marginal costs for a seller.

The degree of a seller's market power has an impact on the

seller's demand curve.

The supply curve is upward-sloping because

sellers can make more profit per unit if the market prices rise.

When education level is used to convey information to an employer, it serves as a:

signal

The marginal cost of an additional worker is

the additional cost of hiring one more worker.

Statistical discrimination is:

the use of observations about the average characteristics of a group to make inferences about an individual member of the group.

Average cost equals:

total cost divided by output.

(Figure: Market Power) Based on the demand curves for four sellers, which of the following sellers has the most market power?

vertical line

Which of the following is NOT a correct rationale about why income redistribution programs do not always reduce efficiency?

When incomes are more equal, work incentive grows.

A key difference between equity and efficiency is that equity deals with _____ and efficiency focuses on _____.

fairness; maximizing economic surplus

A basic logic that applies to all strategic interactions is:

making a good choice requires that you anticipate what others will do.

Asking "One more?" allows the _____ principle to be analyzed as a simple question.

marginal

The price elasticity of demand for a good with a vertical demand curve is:

perfectly inelastic.

If a store runs a sale on a product to clear out its stock, we can conclude that:

there was a surplus of the product in the store.

(Figure: Market for Printed Houses) Consider the market for environmentally friendly three-dimensional printed houses that is shown in the figure. The government wants to encourage buyers to buy such houses and places a price ceiling on the market at $200,000 per house. After the implementation of the price ceiling, the market quantity sold falls by _____ houses.

100,000

(Figure: Graph) Refer to the graph to answer the question. In the graph, the movement from point W to point P represents:

a decrease in demand. (different lines; shift to left)

If wages fall for surgeons but not for family practice doctors, there will be _____ in the market for surgeons and _____ in the market for family practice doctors.

a decrease in quantity supplied; a rightward shift of labor supply

Sellers bear a smaller incidence of a tax when:

supply is more elastic relative to demand.

Which of the following is an example of a negative externality?

When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors.

The output in a market with market power is

inefficient because the marginal benefit to society of extra output exceeds the marginal cost.

A rational buyer will:

keep buying a product until marginal benefit equals price.

Suppose the percent change in the quantity demanded for water for any price change is zero. The demand curve for water is _____, and the price elasticity of demand is perfectly _____.

vertical; perfectly inelastic

The Rational Rule for Sellers is that sellers should choose the quantity _____ and choose the price _____.

where marginal revenue equals marginal cost; that is on the seller's demand curve for that quantity

If demand is _____, a higher price yields _____ total revenue.

elastic, lower

The opportunity costs of a decision may include each of the following types of costs EXCEPT

sunk costs

When market leaders produce on a mass scale, economies of scale mean that new entrants:

have a hard time competing.

When setting prices for different groups of customers, a manager should charge lower prices to groups that

have a more elastic demand.

Redistribution programs are means-tested. To qualify for such a program, a person must demonstrate that:

his or her income (or means) is below a certain specified level.

The distribution of wealth is _____ the distribution of income.

more unequal than

(Figure: Marginal Revenue) What is the marginal revenue of the fifth unit in the following example?

0

(Figure: The Market for Computers) Use Figure: The Market for Computers. Assume that PA is the autarky price and PW is the world price. Producer surplus with international trade would be area:

Y.

Large barriers to entry in the gas station business explain why the two only gas stations in a small town:

can earn an economic profit in the long run.

During the pandemic, people prefer to buy things online. Which graph depicts how the market of parcel delivery services (UPS, FedEx, etc) changes during this time?

demand shift to right (new line)

If an aircraft is found to have software problems that could lead to a malfunction, the effect on the aircraft market will be that the

demand will decrease, and the price of the aircraft will fall.

Suppose that government officials have set an emissions tax to reduce pollution. Assume that the optimal tax would be $1,500, but government officials have set the tax at $500. At the equilibrium with the $500 tax:

there will be too much pollution.

If Larry uses the Rational Rule for Employers, how many workers will he hire?

two

The price of a dozen eggs falls from $2.50 to $1.50. In response to this price change, the quantity demanded for eggs increases by 10%. Using the midpoint formula, what is the absolute value of the price elasticity of demand for eggs?

0.2

If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:

0.5

A large amount of harvested grain used to make flour grows mold due to flooding. How will this affect the supply of flour in the market?

The supply of flour will decrease in the market.

What will the impact be on the supply of long-haul truck transportation services if diesel fuel becomes cheaper?

The supply of truck transportation services will increase.

The profit-maximizing rule MR = MC is:

followed by all types of firms.

Good M has an income elasticity of demand of -0.7. Which of the following items might good M be?

generic-brand toothpaste

According to the Coase theorem, the private market can achieve an efficient outcome:

if bargaining costs are low and property rights are well-defined.

What is the difference between accounting profit and economic profit?

implicit opportunity costs

What is the dominant factor determining market price in the long run (assuming the industry has unrestricted entry)?

avg costs

(Figure: Market for New Housing in Dubai) Which graph shows the effect on the supply curve for new housing in Dubai, if there is a decrease in demand for new housing?

graph b (quantity lowers same line)

Which of the following is NOT a factor that can shift supply?

The market price of a product.

The basic logic behind the Rational Rule for Sellers is that a company owner should increase output as long as the extra output

adds more to revenue than it adds to costs.

If the price of airline tickets goes up, there will be

an increase in the demand for both bus and train tickets.

The negative outcomes of market power include all of the following EXCEPT

lower prices

A market with negative externalities will tend to _____ compared to a market producing the socially optimal output.

overproduce and sell at a lower price

(Figure: The Market for Laptops) Use Figure: The Market for Laptops. Assume that S and D are the domestic supply and demand curves and the world price is PW. Identify the area of government tax revenue when a tariff raises the domestic price from the world price to PT.

E

Which of the following statements is TRUE regarding economic efficiency?

Efficient outcomes rarely make everyone happy.

What attracts new sellers into a market?

Existing sellers in the market earning economic profits.

When people focus their efforts, on the tasks they have a comparative advantage in, what will happen to output?

More of all goods will be produced than if everyone produced everything for themselves.

How do people's beliefs about the distribution of wealth in the United States compare to the actual distribution of wealth in the country?

People believe the distribution of wealth is more equal than it actually is.

(Figure: Pricing Strategy in Cable TV Market II) Use Figure: Pricing Strategy in Cable TV Market II. The Nash equilibrium in the cable TV market occurs when:

both firms set a low price and each earns $90,000.

The last 3 times I wore my orange socks to the basketball game, the Hokies won. I didn't wear my socks to the last game and they lost. "My socks determine whether the Hokies win." is an example of

confusing association (or correlation) with causation.

Suppose supply shifts out and demand shifts back. What happens to the equilibrium price and quantity?

Price falls. The effect on quantity is uncertain.

Which of the following is NOT an example of the hurdle method of price discrimination?

Segmenting the market into identifiable groups with different prices.

Amul Food Factory in India makes ice cream and produces processed and condensed milk. In the factory, the firm's employees use raw milk and sugar. The firm runs on electricity and purchases raw milk every day. Large robotic assembly lines fill and package the ice cream containers. Large industrial freezers store the ice cream. Based on this scenario, can you identify the fixed costs for Amul Food Factory?

The cost of building the factory, purchasing the robotic assembly lines and industrial freezers.

(Figure: Profit Margin 3) JoJo's company data is in the graph below. JoJo would earn a positive profit:

at any output greater than 2 but less than 15.

A company's profit margin is calculated as:

average revenue minus average cost.

Lyft cuts the price of a ride in New York City by 10%. Thereafter, the quantity of rides demanded rises by 25%. What is the absolute value of the price elasticity of demand for Lyft rides?

2.5

(Figure: Labor Market) Refer to the labor market shown here. Suppose a minimum wage of $18 per hour is introduced. After the implementation of the minimum wage, _____ workers are hired.

24,000

The price of product C rises by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____.

2; subs

If Jose charges $8, then Maria's best price would be _____, and she would earn _____

4, 300

Max earns a yearly salary of $120,000 per year from his job and $1,000 per year in interest on his savings. After he quits his job to start a company, he uses all his savings to purchase manufacturing equipment for his company. Given the above information and the data summarizing his first year in business in the table, how much economic profit or loss does Max earn?

4,000

(Figure: Market for Engines) According to the figure, if there is international trade in this market, and the world price of engines is $1,000, domestic consumers will purchase _____ units from domestic producers and _____ units from foreign producers.

400; 0

There are 3 pizza places in a small town. One has 50% market share, one has 40% market share, and one has 10% market share. What is the HHI for the pizza places?

4200

The graph shows the marginal social cost, demand, and supply curves in the jigsaw puzzle market. What are the socially optimal quantity and price in this market?

4; $8

What is the equilibrium price in this market?

50

In the Nash Equilibrium of this game, Maria will charge a price of _____, and Jose will charge a price of _____.

8,8

Betty is willing to pay up to $160 for a particular pair of boots. She is able to buy the boots for $120. The marginal cost of producing the boots is $70. How large is the total economic surplus associated with her purchase of the boots? (do not put "$" in your answer - just the number)

90

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is _____ the marginal cost of an additional item.

=

Which of the following market changes would lead to a shift of the demand curve from Old demand to New demand?

A report is published noting that the product has adverse health effects.

Which of the following market changes would lead to a shift of the supply curve from Old supply to New supply?

A rise in the price of a product that is a complement-in-production.

Which of the following statements is FALSE regarding a Nash equilibrium?

Cooperation between the players could not improve the outcome.

(Figure: Consumer and Producer Surplus) Look at the figure Consumer and Producer Surplus. If the price is held below equilibrium, producer surplus will be _____ if the market were in equilibrium and total surplus will be _____ if the market were in equilibrium.

less than; less than

A corrective tax designed to resolve a negative externality problem is typically set at an amount equal to the _____ cost.

marginal external

A seller's demand curve summarizes its _____, and its marginal revenue curve measures its _____.

market power; incentive to increase production

A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you:

multiply the individual supply of one of the suppliers by ten.

Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, if the firms collude to maximize joint profits:

neither will advertise.

The relationship between price expectations and demand is

positive; when future prices are expected to rise, current demand will rise.

Common resources have:

private gains but shared costs.

Marginal social cost equals marginal _____ cost plus marginal _____ cost.

private; external

Market power results in companies that _____ and that have _____ compared to perfect competition.

produce less; higher price

A natural monopoly exists when

producing a large output has significantly lower marginal cost than producing a small output.

Household A earns $50,000 a year and pays $10,000 in taxes. Household B earns $200,000 a year and pays $50,000 in taxes. The tax system described here is...

progressive

A shortage occurs when:

quantity demanded exceeds quantity supplied.

During the pandemic, people don't want to go out to eat as much. At the same time, costs for restaurants are rising to ensure the safety of their employees. What do you predict will happen to the equilibrium price and quantity for restaurant meals?

quantity falls, the effect on price is uncertain

If an item is a necessity rather than a luxury, and has few substitutes, its demand curve will likely be:

relatively steep.

Cedar point amusement park reduces its entry fees. As a result of this price fall,

the quantity demanded will be higher.

Alan Patel is a college student living alone in a campus apartment. He finished cooking dinner when his friends text him to join them at the dining hall on campus for dinner. He now has to decide whether to eat the dinner he prepared or walk to campus to meet his friends at the dining hall. Alan should consider all the following costs when making this decision EXCEPT the

time he spent cooking the dinner.

Which type of strategy for repeated games involves doing whatever the other player did the last time the game was played?

tit-for-tat

The price of coffee at a local coffee shop is $3. Cheryl is willing to pay $6 for her first cup of coffee each day. The marginal benefit to her of each additional cup of coffee falls by $2. How many cups of coffee should Cheryl purchase?

two

When companies exercise market power, _____ occurs. _____ can partially solve this problem.

underproduction; Price discrimination

A nonrival good is a good:

where one person's use of the good does not reduce another person's ability to use the same unit of the good.

Which of the following is correct about the discount effect facing companies in perfectly and imperfectly competitive markets? Companies in perfect competition _____ it. Companies in imperfect competition _____ it.

do not face; face

According to the interdependence principle, when faced with a decision, you should ask what

else might my decision affect and what else might affect my decision?

When there is free entry and exit in a market, in the long run, price will:

equal average cost.

(Figure: The Domestic Supply and Demand for SUVs in the United States) Use Figure: The Domestic Supply and Demand for SUVs in the United States. Suppose the world price equals $50,000 and there is free trade. The United States would _____ SUVs.

export 6 million

Assume an economy moves from autarky to free international trade. For goods that are imported, consumer surplus rises , producer surplus _____ , and the economy as a whole _____

fall , gains

(Figure: Demand for Bus Rides) The city of Vaughan in Ontario, Canada, opened a new subway line that extended the existing subway system between the greater Toronto area and the city of Vaughan. The route previously only had bus service. Which of the following graphs depicts the effect you would expect to see on the demand for bus rides on this route after the introduction of the subway?

graph a (demand shift to left)

(Figure: Market for Bread) Bread and cheese are often considered to be complementary foods. Which graph shows what will happen in the market for bread if the price of cheese rises?

graph a (demand shift to left)

An increase in the price of capital will _____ demand for labor if capital and labor are substitutes, and it will _____ the demand for labor if the scale effect dominates.

increase; decrease

Damon's wage rises. The substitution effect would cause him to _____ his work hours, and the income effect would cause him to _____ his work hours.

increase; decrease

(Figure: Market for Engines) Suppose that the world price of engines is $1,000. According to the figure, the domestic total surplus will _____ by _____ in the free-trade equilibrium relative to the no international trade equilibrium.

increases; $120,000

A government may want to create barriers to sellers entering a given market for all of the following reasons EXCEPT:

increasing the market demand for a product so that all sellers enjoy higher demand.

Sellers who are in _____ markets face a less extreme trade-off between higher prices and higher quantity than sellers in perfect competition. As a result of this, they can _____.

imperfectly competitive; earn higher profits

Jonathan Mendez is deciding whether to study for his economics exam at a café down the street or go to a concert a few cities over. The time spent commuting to the concert is ____ in his opportunity cost calculations and represents a _____ cost.

included; nonfinancial

What was the primary effect of "redlining"? in the US?

It prevented African Americans from buying homes.

(Table: Four persons) The table lists the minutes that it will take four people to wash a car and to sort and fold a load of laundry. Use the data to answer the question.

Jen

The marginal revenue product of labor is equal to:

MPL × P.

A tax on sellers would not cause a decrease in quantity sold if:

demand is perfectly inelastic.