ECON FINAL EXAM

Use the supply curve for bottles of dish soap in the graph to answer the question. ​ If 15 bottles are sold at a price of $8, what is the producer surplus on the last unit sold?

$0

Use Figure: A Profit-Maximizing Monopoly Firm. This firm's price per unit is:

$20

When Cocoa Pebbles are $3 per box, I'll buy 2. When they are $2 per box, I'll buy 4. What is my price elasticity of demand for Cocoa Pebbles (using the midpoint formula)?

1.67

Use Table: Production of Bagels at The Bagel Factory. The marginal product of labor for the seventh worker is _____ bagels.

3 dozen

Consider the "Steve's Sandwich Shop" table below. If the wage was $15/hr and sandwiches sold for $6 each, how many workers should Steve hire?

4

Which of the following statements is true?

A firm with economic profits will also have accounting profits.

START OF EXAM 2

START OF EXAM 2

Which of the following is FALSE?

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

Which of these is likely to have the most elastic demand?

a 12 ounce bag of Cool Ranch Doritos

There are two popular hiking trails between the bottom parking lot and the top of a mountain. Both trails are similar in length and difficulty. If you want to hike on the less crowded trail, you are facing what type of game?

an anti-coordination game

As output rises, average fixed costs:

fall

Suppose supply shifts back causing price to rise by 30%. If the price elasticity of demand is 0.8, then quantity demand will

fall by 24%

Assuming the normal S and D curves (not vertical or horizontal), a rise in input costs will have what effect on consumer, producer, and total surplus? Consumer surplus will fall , Producer Surplus will [ Select ] ["fall", "rise", "stay the same"] , and Total Surplus will [ Select ] ["stay the same", "fall", "rise"] .

fall, fall, fall

Improved production technology would cause equilibrium price to ______and quantity to _______.

fall; rise

A nonexcludable good is a good in which:

it is difficult or impossible to prevent someone from using or having access to the good.

A higher income Gini coefficient means what?

less equal income distribution

Income in the United States is

less equally distributed than income in other high-income economies.

When a firm has market power, Marginal Revenue is always

less than price

The assumption of easy entry and exit implies that, in the _____ run, all firms in the industry will earn _____ economic profits.

long; zero

Normative analysis in economics:

makes prescriptions recommendations about how the economy should work.

In game theory, in a "Nash Equilibrium" ....

neither player regrets their individual choice after seeing what the other player chose.

Diminishing marginal utility can help explain why...

the demand curve slopes down.

If you go to Turner place early to avoid the rush, you save time. If everyone does the same thing, lines are long then too. This example illustrates what idea?.

the fallacy of composition

An income elasticity of demand equal to -0.5 means that...

the good is inferior and demand will increase as income falls.

The cost of working one more hour is

the hour of leisure that is given up

In a free market, if price is "too low" then,

there is a shortage and price will rise.

The opportunity cost of going to a movie is equal to

whatever you would have done with the time and money if you had not gone to the movie

One problem with assuming that people's willingness to pay is a measure of the marginal benefit they would receive from the product is that:

willingness to pay reflects ability to pay as well as marginal benefit.

The price elasticity of demand for a particular life-saving drug is zero, and the price elasticity of supply is 0.50. If a $10 tax is levied on producers, how much of this tax will eventually be paid by consumers?

$10

Using the Rational Rule for Employers, the maximum profit Carmin could earn is _____. She would employ _____ workers to earn this profit (assume that labor is the only cost).

$352; three

START OF EXAM 3

START OF EXAM 3

A necessity, like toothpaste, is likely to have

an income elasticity near zero

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

Use Figure: The Market for Grapes in California. When the government imposes a tariff on imported grapes, the price of grapes in California rises from PW to PT, and there's a net _____ in total surplus of _____.

reduction; D + F

What word best defines this tax system: Income Income Tax $50,000 $10,000 $100,000 $15,000 $200,000 $20,000

regressive

The "Tit-for-tat" strategy can be used in what type of game?

repeated

If a government increases subsidies for childcare, there will be a _____ in the country's labor market.

rightward shift of the labor supply curve

If the elasticity of demand is 1.8, a decrease in price will cause total revenue to

rise

The graph shows the marginal social benefit, marginal private benefit, and marginal private curves in the taco market. In this market, the socially optimal output would be _____, whereas the market-determined output would be _____.

six; four

Refer to the market for reusable shopping bags that is shown in the figure. The original equilibrium price is $7 per bag. After the subsidy is implemented, the amount that buyers pay is:

$5

A tax on buyers causes which of the following?(i) a leftward (or downward) shift of the demand curve(ii) a decrease in quantity sold(iii) an increase in the price buyers pay

(i), (ii), and (iii)

In the graph shown, the original equilibrium price is $50. A $6 tax is placed on the seller in this market. The economic burden of this tax on the buyer is $_____.

1

In a single year, Germany can raise 100 tons of wheat or produce 1,000 boxes of daisies. In the same growing season, France can raise 50 tons of wheat or produce 750 boxes of daisies. Without trade, the opportunity cost of 1 ton of wheat in Germany is:

10 boxes of daisies.

(Table: The Demand for Potato Chips) Use Table: The Demand for Potato Chips. If Blair, Serena, and Dan are the only three buyers in the market and the price of a bag of potato chips is $0.60, the total market quantity demanded is _____ bags per month.

205

The graph shows the marginal social cost, demand, and supply curves in the cinnamon roll market. A corrective tax of _____ per unit will move the cinnamon roll market to the socially optimal output of _____ units.

2;8

(Figure: Market for Engines) According to the figure, if there is international trade in this market, and the world price of an engine is $800, the quantity demanded is _____, and domestic suppliers will sell _____ units to domestic consumers.

500;500

_____ allow a profitable company to maintain profits over time.

Barriers to entry

In 2011, Japan suffered a major earthquake and tsunami. Honda parts that were sourced from Japan could no longer be produced, which caused Honda to cut its production of cars. Which graph shows the effect of this shortfall?

Graph C

Why would the government allow companies to buy and sell permits that allow companies to emit specified amounts of pollutants?

It ensures that emissions reductions are primarily undertaken by firms that can reduce emissions at a lower cost than others can.

M and J are going to sell cupcakes and muffins at their third annual fundraiser bake sale. In one day, M can make 40 cupcakes or 20 muffins, and J can make 15 cupcakes or 15 muffins. Based on this information, _____ has the comparative advantage in cupcakes, and _____ has the absolute advantage in muffins.

M;M

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.

If both players play the "maximin" strategy, what is the outcome of this one-shot game? (higher numbers are better)

Player 1 plays A and Player 2 plays A

What is the outcome of this one-shot game? (higher numbers are better)

Player 1 plays B and Player 2 plays B

The cost of labor, a key input for restaurants, has been rising. At the same time, people want to go out to eat more as the pandemic wanes. What can we expect to happen to the price and quantity of restaurant food?

Price will rise, the effect on quantity is not certain.

DP Dough can sell Calzones or Strombolis (2 things made from the same ingredients). If the price of calzones rises, which answer best describes the response of DP dough?

Quantity supplied of calzones would rise and the supply of strombolis would fall (shift back).

(Figure: Monopoly Model) Use Figure: Monopoly Model. When the firm is in equilibrium (that is, maximizing its economic profit), its profit is the area of rectangle:

SPDB

So far, we've assumed that our markets are "perfectly competitive". Which of these answers is NOT compatible with this assumption?

So far, we've assumed that our markets are "perfectly competitive". Which of these answers is NOT compatible with this assumption?

Suppose BOTH supply and demand shift. In the end we see a lower equilibrium price and a higher equilibrium quantity. Which of these answers makes sense with that change?

Supply shifts out a lot and demand shifts back a little.

Why might a tariff be preferred to a quota in the importing country?

Tariffs generate government revenue while quotas (normally) do not.

Home buyers and sellers both expect home prices in Blacksburg to rise next year. How does that effect the market for homes in Blacksburg right now?

Those expectations shift demand out and supply back.

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 (so, $6, $4, $2, $0). How many cups of coffee should Cheryl purchase?

Two

When price discrimination is practiced, a company sells _____ and charges _____ compared to what it would do without practicing price discrimination.

a larger output; higher price to some and lower prices to others

When a single business can service the entire market demand at a lower cost than several smaller businesses, the market is

a natural monopoly

Consider the market for environmentally friendly pre-fabricated 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. What occurs in this market after the implementation of the price ceiling?

a shortage of 300,000 houses

The market power of a firm is its

ability to raise its price without losing all of its customers to competing businesses.

The movement from point V to point W is caused by

an increase in the price of the item

A characteristic of oligopoly that is not present in other market structures is that there

are a small number of sellers and they have market power.

In a market system, public goods would:

be underproduced.

If a firm hires labor such that W < MRPL, then profit

can be increased by hiring more labor

If a monopolist is producing a quantity that generates MC< MR, then profit:

can be increased by increasing production.

Marginal benefit minus price equals:

consumer surplus

I always eat salsa with my chips. For me, the ________between chips and salsa must be _______

cross-price elasticity; negative

Sam's wage falls. The substitution effect would cause them to _____ their work hours, and the income effect would cause them to _____ their work hours.

decrease; increase

(Figure: Market for TVs 2) The world price of televisions is $500. According to the figure, international trade will lead to [ Select ] ["an increase", "no change", "a decrease"] in the domestic producer surplus, [ Select ] ["a decrease", "an increase", "no change"] in the domestic consumer surplus, and a decrease in total domestic surplus.

decrease; increase; increase

Assuming there is a fixed input (something the firm cannot change), rising marginal costs are a result of

diminishing marginal product for variable inputs.

The area on a market graph that lies below the price and above the supply curve is equal to:

economic efficiency

The Coase theorem implies that:

given low bargaining costs and clear property rights, private individuals can achieve a socially optimal solution without the involvement of the government.

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

have a more elastic demand

Compensating differentials lead to:

higher salaries for more unpleasant jobs

A shift out of the supply curve (increase in supply) would be caused by... (choose all that apply).

improved technology of production and a fall in the cost of labor

If the price of peanut butter were to decrease, the demand for jam, a complementary good, would probably _____

increase

Assume that the United States imposes an import quota on English wool suits. Relative to the equilibrium price that would prevail in the absence of quotas, the equilibrium price of suits in the United States will most likely _____, and the equilibrium price of suits in England will most likely _____.

increase; decrease

Suppose demand shifts out. Price will rise more if supply is...

inelastic

Stores that are expected to perform better during recessions are those that sell

inferior goods.

Following the rational rule, economic surplus is maximized when

marginal benefits equal marginal costs.

The main difference between Perfect Competition and Monopolistic Competition is that...

monopolistic competition has differentiated products and perfect competition does not.

The profit-maximizing rule, MC = MR, is followed by firms operating in:

monopolistic competition, monopoly, and perfect competition.

Suppose elasticity of demand = 0.3 and elasticity of supply = 0.8. The economic burden of a tax on this product would fall

mostly on buyers

Firms in monopolistic competition can acquire some market power by:

product differentiation.

When making decisions, we should ignore ______ and focus on ________.

sunk costs; marginal costs and benefits

The Demand and Supply of Quinoa. If the price of quinoa is $8, a [ Select ] ["surplus", "shortage"] of [ Select ] ["3,000", "1,000", "6,000", "8,000", "4,000", "7,000", "5,000", "2,000"] bushels per period will result.

surplus, 4000

The free-rider problem results from:

the inability to prevent individuals who do not pay for a good from consuming it.