econ final (practice exam

Scenario 13-7 Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000 and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. Julias implicit costs are?

$10,000

Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local gas station is $3.80. If she purchases ten gallons of gasoline, then Kelly's consumer surplus is

$14

suppose the government places a $5 per-unit tax on this good. The producer surplus after this tax is

$15

Tom walks bethanys dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus (per week)?

$30

Doreen's dairy produces and sells swiss cheese. Last year, it produced 7,000 pounds and sold each pound for $6. In producing the 7,000 pounds, the dairy incurred variable costs of $28,000 and a total cost of $40,000. In producing the 7,000 pounds of cheese, the firm's average variable cost was

$4.00

When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $10 it sells 62 units. The marginal revenue for the firm over this range is

$54

Scenario 13-18 Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 30 watermelons. If he plants 2 bags of seeds, he gets 50 watermelons. If he plants 3 bags of seeds he gets 60 watermelons. A bag of seeds costs $100, and the costs of seeds are his only costs. Which of the following statements are true? (i) Farmer Jack experiences decreasing marginal product (ii) Farmer Jack's production function is nonlinear (iii) Farmer Jack's total cost curve is linear

(i) and (ii) only

a nonbonding price floor (i) causes a surplus (ii) causes a shortage (iii) is set at a price above equilibrium (iv) is set at a price below equilibrium

(iv) only

which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?

0.3

at price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about

0.875

on a certain supply curve, one point is (quantity supplied=200, price=$2.00) and another point is (quantity supplied=250, price=$2.50). using the midpoint method, the price elasticity of supply is about

1.0

In graph (b), what is the price of good X relative to the price of good Y

1/3

if the price elasticity of demand for a good is 0.5, then a 5 percent increase in price results in a

2.5 percent decrease in the quantity demanded

which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue?

2.6

if the price elasticity of demand for a good is 1.2, then a 3% decrease in price results in a

3.6% increase in the quantity demanded

a monopolist faces the following demand curve: Picture If a monopolist faces a constant marginal cost of $1, how much output should the firm produce in order to equate marginal revenue with marginal cost?

5 units

Consumer surplus in this market after trade is

A

what is the outcome of this game?

Both Firm W and Firm H will advertise

import quotas and tariffs produce similar results. Which of the following is not one of those results?

Consumer surplus of domestic consumers increases.

which of the following statements does not apply to a market economy?

Government policies are the primary forces that guide the decisions of firms and households

which of the following statements is correct?

If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit

In a competitive market the current price is $5. The typical firm in the market has ATC=$5.50 and AVC=$5.15.

In the short run firms will shut down, and in the long run firms will leave the market.

After the tax goes into effect, producer surplus is the area

J

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 3 slices of pizza and 4 paperback novels?

Jack only

Evidence from the market for eyeglasses suggests that advertising leads to

Lower prices for consumers

Under which of the following market structures would consumers likely receive the most product variety?

Monopolistic competition

table 17-20 Payoff for Nadia, Payoff for Maddie What is the Nash equilibrium in this dorm room cleaning game?

Nadia: dont clean Maddie:dont clean

Table 17-20 Nadia and Maddie are two college roommates who both prefer clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not to clean the dorm room's common space. The payoff table for this situation if provided below, where the higher a player's payoff number, the better off the player is. The payoffs in each cell are shown as (PO for Nadia, PO for maddie) If Nadia choose to not clean, then Maddie will

Not clean, and Maddie's payoff will be 10

the figure is drawn for a monopolistically competitive firm suppose that average total cost is $36 when Q=24. What is the profit-maximizing price and resulting profit?

P=$36, profit=$0

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

P> ATC P=ATC P<ATC ANY OF THE ABOVE COULD BE CORRECT

Economist defend brand names as useful to consumers because brand names

Provide consumers with information about quality when quality cannot easily be judged in advance of purchase. give firms a financial incentive to maintain the high quality associated with their brand name. BOTH A AND B

Suppose the electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

The after-tax equilibrium quantity is less than the socially optimal quantity.

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

The cost of the labor that the firm uses. The cost of the steel that is used in producing automobiles. The cost of the electricity of running the machines on the factory floor ALL OF THE ABOVE

what would happen to the equilibrium price and quantity of lattes if coffee shops began using a machine that reduced the amount of labor necessary to produce them?

The equilibrium price would decrease, and the equilibrium quantity would increase

which of the following is not a reason why government agencies subsidize basic research?

The government wants to attract the brightest researchers away from private research firms.

When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because

The marginal cost curve determines the quantity of output the firm is willing to supply at any price.

the difference between a corrective tax and a traceable pollution permit is that

a corrective tax sets the price of pollution and a permit sets the quantity of pollution

if a binding price floor is imposed on the video game market, then

a surplus of video games will develop

Which of the following firms is the closest to being a perfectly competitive firm?

a wheat farmer in Kansas

Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million. PM Inc.'s dominant strategy is to

advertise regardless of whether Brown Inc. advertises

producer surplus with the tariff is

all of the yellow, G and C

If an allocation of resources is efficient, then

all potential gains from trade among buyers are sellers are being realized

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

amount of each good the consumer is currently consuming

a supply curve slopes upward because

an increase in price gives producers an incentive to supply a larger quantity

consider the market for portable air conditioners in equilibrium. when a heat wave strikes the equilibrium price

and quantity both increase

suppose that demand for light bulbs is inelastic, and the supply of light bulbs is elastic. a tax of $2 per bulb levied on light bulbs will increase the price paid by buyers of light bulbs by

between $1 and $2

a surplus results when a

binding price floor is imposed on a market

The free entry and exit of firms in a monopolistically competitive market guarantees that

both economic profits and economic losses disappear in the long run

for which of the following problems can well-designed public policy enhance economic efficiency?

both externalities and market power

if a tax is imposed on a market with inelastic demand and elastic supply then,

buyers will bear most of the burden of the tax

Today, producers changed their expectations about the future. this change

can affect todays supply

The textile industry is composed of a large number of small firms. In recent year, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

cause the market supply to decline and the price of textiles to rise

The price and quantity relationship in the table is most likely a demand curve faced by a firm in a

competitive market

the figure represents the relationship between the size of a tax and the tax revenue raised by that tax. If the economy is at point B on the curve, then a small decrease in the tax rate will

decrease the deadweight loss of the tax and increase tax revenue.

two goods are substitutes when a decrease in the price of one good

decreases the demand for the other good

which of the following is likely to have the most price elastic demand?

diamond earrings

When new firms the an incentive to enter a competitive market, their entry will

drive down profits of existing firms in the market

suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

elastic and equal to 6

the government provides public goods because

free-riders make it difficult for private markets to supply the socially optimal quantity

which of the following explains why long-run average cost at first decreases as output increases?

gains from specialization of inputs

Patent and copyright laws are major sources of

government-created monopolies

If the Korean steel industry subsidizes the steel that it sells to the United States, the

harm done to U.S. steel producers is less than the benefit that accuses to U.S. consumers of steel

the income elasticity of demand for caviar tends to be

high because buyers generally feel that they can do without it

a market demand curve shows

how much of a good all buyers are willing and able to buy at each possible price

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

impose a tax on alcohol that is equal to the per-unit externality

a company that formerly produced music CDs went out of business because too many potential customers bought illegally-produced copies of the CDs instead of buying the product directly from the company. this instance serves as an example of

inadequate enforcement of property rights

Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

increase by $2

if the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would

increase by 4%

if muffins and bagels at substitutes, a higher price for bagels would result in

increase in demand for muffins

Scenario 14-4 The info below applies to a competitive firm that sells its output for $40 per unit. -When the firm produces and sells 150 units of output, its average total cost is $24.50 -When the firm produces and sells 151 units of output,its average total cost is $24.55 When the firm increases its output from 150 to 151 units, its profit

increases by $7.95

Elena loves orange juice. She reads in the newspaper that 20 percent of the Florida orange crop was destroyed by a late spring frost. Economists predict that the price of oranges will rise by 50% by the end of the year. As a result, Elena's demand for orange juice

increases today

if an increase in income decreases the demand for a good, then the good is

inferior good

A firm that is a natural monopoly

is not likely to be concerned about new entrants eroding its monopoly power.

Regulation of a firm in a monopolistically competitive market

is unlikely to improve market efficiency

In order to sell more of its product, a monopolist must

lower its price

if marginal cost is rising,

marginal product must be falling

suppose the market is initially in equilibrium. Then the government imposes a price control, as represented by the solid horizontal line on the graph. If the price control is a price floor, then the price control

means that some firms will not be able to sell all that they want

All remedies for externalities share the goal of

moving the allocation of resources toward the socially optimal equilibrium

Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry?

panel c

in which of the following situations will total revenue increase

price elasticity of demand is 1.2, and the price of the good decrease, Price elasticity of demand is 0.5, and the price of the good increases, Price elasticity of demand is 3.0, and the price of the good decreases. ALL OF THE ABOVE

when a monopolist reduces the quantity of output it produces and sells, the

price of its output increases

According to Coase theorem, in the presence of externalities

private parties can bargain to reach an efficient outcome

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

private parties can bargain with sufficiently low transaction costs

A firm in a competitive market has the following cost structure If the market price is $4, this firm will

produce 3 units in the short run and exit in the long run

for markets to work well, the must be

property rights

Research into new technologies

provides positive externalities because it creates a knowledge others can use.

A seller is willing to sell a product only if the seller receives a price that is at least as great as the

seller's cot of production

when the price of a good is higher than the equilibrium price,

sellers desire to produce and sell more than buyers wish to purchase.

the smaller the price elasticity of demand, the

steeper the demand curve will be through a given point

suppose demand is perfectly inelastic, and the supply of the good in question decreases. as a result

the equilibrium price increases, and the equilibrium quantity is unchanged

a cooperative agreement among oligopolists is less likely to be maintained,

the greater the number of oligopolists.

What are the two effects of change in a price that a consumer experiences?

the income effect and the substitution effecet

if the minimum wage exceeds the equilibrium wage, then

the quantity supplied of labor will exceed the quantity demanded

for a vertical demand curve

the slope is undefined, and the price elasticity of demand is equal to 0

The paradoxical nature of oligopoly can be demonstrated by the fact that, even though the monopoly outcome is best for the oligopolists,

they have incentives to increase production above the monopoly outcome

a key determinant of the price elasticity of supply is the

time horizon

suppose the government imposes a tax of P'-p"'. The area measured by I+J+K+L+M+Y represents

total surplus before the tax

If china were to abandon a no-trade policy in favor of a free-trade policy

total surplus in the Chinese economy would increase

Which of the following would be most likely to contribute to the breakdown of a cartel in a natural resource(e.g., bauxite) market?

unequal member ownership of the natural resource

one of the basic principles of economics is that markets are usually a good way to organize economic activity. this principle is explained by the study of

welfare economics

in the short run, a firm operating in a monopolistically competitive market can earn

zero economic profits positive economic profits economic loses ALL OF THE ABOVE