ECON Patel Final Exam
Suppose that you manage a distillery that produces a high end "designer" beer and a low end "discount" beer. You find that the consumer demand for your "designer" beer is relatively more inelastic to changes in price than the consumer demand for your low end beer. In fact │ED│= .4 for the designer beer and │ED│= 1.2 for the discount beer. If your goal is to increase total revenue from beer sales, which of the following would be your best strategy? A. Increase the price of your high end beer and decrease the price of your low end beer. B. Increase the price of your high end beer and increase the price of your low end beer. C. Decrease the price of your high end beer and increase the price of your low end beer. D. Decrease the price of your high end beer and decrease the price of your low end beer.
A
A binding rent control policy results in all of the following EXCEPT: A. improvements in the quality of rental housing B. a black market for rental housing C. a reduction in the future production of rental housing D. higher search costs for those looking for rental housing
A.
An airline ticket from Seattle to Miami costs $525. A bus ticket is $325. Traveling by plane will take 5 hours, compared with 25 hours by bus. Thus, the plane costs $200 more but saves 20 hours of time. (Hint: Note how we are "thinking at the margin" here by looking at the changes.) Other things constant, an individual will gain by choosing air travel if, and only if, each hour of her time is valued at more than A. $10 per hour B. $13 per hour C. $20 per hour D. $105 per hour
A.
Given the total product curve described by the numbers in the table below, diminishing marginal product sets in when the _____worker is hired and begins to work. A. second B. third C. fourth D. fifth
A.
Suppose the actions of the producers of a good impose an EXTERNAL COST which results in the actual market price of $25 and market output of 1,000 units. How does this outcome compare to the efficient, ideal equilibrium? A. The efficient price would higher than $25 while the efficient output would be less than 1,000 units. B. The efficient price would be higher than $25 while the efficient output would be greater than 1,000 units. C. The efficient price would be lower than $25 while the efficient output would be less than 1,000 units. D. The efficient price would be lower than $25 while the efficient output would be greater than 1,000 units.
A.
The number of cattle slaughtered every year for meat far exceeds the number of elephants slaughtered every year for their ivory. Despite this, cows can be found everywhere while elephants are on the verge of extinction in some countries. Which of the following best explains this difference? A. Cows can be privately owned while in many countries elephants cannot. B. The demand for ivory far exceeds the demand for beef. C. Animals slaughtered for their meat are generally better conserved by humans than animals slaughtered for nonfood uses. D. People tend to protest more every year to prevent cow extinction than they do for elephant extinction.
A.
The supply of product X is elastic if the price of X rises by: A. 5% and quantity supplied rises by 7%. B. 8% and the quantity supplied rises by 8%. C. 10% and the quantity supplied remains the same. D. 7% and the quantity supplied rises by 5%.
A.
If the market equilibrium price for this product is $8, what is the dollar amount of your profit if you operate at the profit-maximizing output level? A. $68 B. $136 C. $192 D. $204 E. $272
A. To do this problem, find the Profit=Total Revenue-Total Cost. Total Cost=$8x34 and then Total Revenue=$6x34 So, you get $272-204=$68.
True/False. If there exists asymmetric information about the quality and contents of prescription drugs (and as a consequence some might be fakes) then, from the society's point of view, the output is over-provided.
A. True
Which of the following is a public good? a. house. b. traffic sign. c. both of the above. d. none of the above
B.
You have been hired as a consultant to determine the appropriate plant size for this firm. The firm provides you with the graph above and the fact that they want to produce at the q* level of output. Based on the graph above, which plant size would you recommend? A. Plant size 1 B. Plant size 2 C. Plant size 3 D. Cannot make a recommendation on plant size based on this information.
B.
At a firm's current output level of 200 units per week, it has 10 employees at a weekly wage of $500 each. Raw materials, which are ordered and delivered daily, cost $1,000 per week. The weekly cost of the firm's capital (building and equipment) is $1,250. Which of the following statements is correct? A. total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250 B. total variable cost is $6,000; total fixed cost is $1,250; total cost is $7,250 C. total variable cost is $1,250; total fixed cost is $6,000; total cost is $7,250 D. total variable cost is $2,250; total fixed cost is $500; total cost is $2,750 E. total variable cost is $1,500; total fixed cost is $1,250; total cost is $2,750
B
Consider the following PPFs for Madison, Wisconsin and Milwaukee, Wisconsin. Milk Beer If Madison and Milwaukee each face the PPFs shown on the graph above, which of the following statements is true? A. Milwaukee should specialize in the production of beer because it has the absolute advantage in beer production. B. Madison should specialize in milk production because it has the comparative advantage in milk production. C. Madison should specialize in the production of milk because it has the absolute advantage in milk production. D. Milwaukee should specialize in the production of milk because it has the comparative advantage in milk production.
B
Given the following Production Schedule of Basketballs and Jelly Beans for two countries, the U.S and the Netherlands. The U.S. The Netherlands Jelly Beans Basketballs Jelly Beans Basketballs 0 10 0 5 4 8 5 4 8 6 10 3 12 4 15 2 16 2 20 1 20 0 25 0 Which country has the Comparative Advantage in the production of Jelly Beans? A. The U.S. B. The Netherlands C. Neither the U.S. nor the Netherlands D. Both the U.S. and the Netherlands
B
Suppose that the government imposes a $100 excise tax on motorcycles. In response to this tax the market price of motorcycles rises by $75. Based on this information, we can conclude that consumers bear _____% of the economic burden of the tax and that the demand curve is relatively more _______than the supply curve. A. 75%, elastic B. 75%, inelastic C. 25%, elastic D. 25%, inelastic'
B
You will temporarily shut the firm down if the market price temporarily falls below A. $2 B. $4 C. $6 D. $8
B
A firm that must select its profit-maximizing output based on a market-determined price is called a A. price-searcher firm. B. price-taker firm. C. price-setter firm. D. price-immune firm
B.
A neighborhood group initiates a "neighborhood watch" program. Ella doesn't take part in the program, but she enjoys the greater security the program provides. Ella is a: a. smart consumer. b. free rider. c. busy person. d. poor citizen.
B.
A pure market economy is unlikely to provide a sufficient amount of a public good like national defense because A. the consumers are poorly informed as to the value of national defense. B. it is generally impossible to withhold national defense from a nonpaying customer so some people will be free riders. C. national defense does not yield a benefit to individuals. D. private firms will be less skilled than public firms when producing a public good such as national defense.
B.
Consider the following graph in answering this question: Which section of this total product curve exhibits decreasing marginal returns (also called decreasing marginal product)? A. A B. B C. C D. A & B
B.
Consider the four production possibility frontiers depicted below. Y b) Y c) Y d) Y PPFD PPFA PPFB PPFC X X X X Which one exhibits constant opportunity costs? A. A B. B C. C D. D Consider the four production possibility frontiers depicted below. Y b) Y c) Y d) Y PPFD PPFA PPFB PPFC X X X X Which one exhibits constant opportunity costs? A. A B. B C. C D. D
B.
Economist have been studying the impact of the recession by looking at how a drop in average income levels has affected the demand for various products. When calculating the income elasticity of demand (YD) for delivered pizza they find that YD = -.32. This implies that consumers treat delivered pizza as A. a normal, necessity good. B. an inferior good. C. a normal, luxury good. D. an elastically demanded good.
B.
Firms form for all of the following reasons except: A. to realize economies of scale. B. to prevent shirking. C. to allow specialization and team production. D. to minimize transaction costs.
B.
Given the following information about the market for compact discs: Price Quantity Demanded Quantity Supplied $5 100 0 10 80 30 15 60 60 20 40 90 25 20 120 30 0 150 What is the price elasticity of demand when the price increases from $15 to $20? A. -5/7 B. -7/5 C. -2/7 D. -7/2
B.
If a monopoly were to emerge in an industry due to the consolidation of several smaller firms, what would be the most likely result? A. prices would fall and output would fall B. prices would increase and output would fall C. prices would increase and output would increase D. prices would fall and output would increase
B.
If the quantity demanded is greater than the quantity supplied, the pricing system (through the invisible hand) will respond by: A. lowering the product price and therefore the profits of the firms responsible for not producing enough. B. raising the product price, therefore decreasing the quantity demanded. C. lowering product price, but increasing producer profits. D. raising product price, therefore increasing the quantity demanded.
B.
Suppose that the market for soybeans is perfectly competitive. A study is published that concludes that consumption of soybeans actually contributes to certain types of cancers. This, of course, leads to: A. a permanent increase in demand—the short run profits of a soybean farmer will increase and the soybean farmer will increase soybean production in the short run and, in the long run, market output will be higher. B. a permanent decrease in demand—the short run profits of a soybean farmer will decrease and the soybean farmer will decrease soybean production in the short run and, in the long run, market output will be lower. C. a permanent increase in demand—the short run profits of a soybean farmer will decrease and the soybean farmer will increase soybean production in the short run and, in the long run, market output will be higher. D. a permanent decrease in demand—the short run profits of a soybean farmer will increase and the soybean farmer will decrease soybean production in the short run and, in the long run, market output will be lower.Suppose that the market for soybeans is perfectly competitive. A study is published that concludes that consumption of soybeans actually contributes to certain types of cancers. This, of course, leads to: A. a permanent increase in demand—the short run profits of a soybean farmer will increase and the soybean farmer will increase soybean production in the short run and, in the long run, market output will be higher. B. a permanent decrease in demand—the short run profits of a soybean farmer will decrease and the soybean farmer will decrease soybean production in the short run and, in the long run, market output will be lower. C. a permanent increase in demand—the short run profits of a soybean farmer will decrease and the soybean farmer will increase soybean production in the short run and, in the long run, market output will be higher. D. a permanent decrease in demand—the short run profits of a soybean farmer will increase and the soybean farmer will decrease soybean production in the short run and, in the long run, market output will be lower.
B.
Suppose you purchase the Lexington Herald-Leader and as the new owner, you discover that your employees take smoking breaks every 15 minutes and are more likely to be discussing U.K. basketball than running the presses. Which of the following actions is most likely to be effective in reducing the shirking? A. Make yourself residual claimant of any profits the company earns. B. Offer a yearend bonus to employees based on the firm's performance that year. C. Hire additional employees to operate the presses. D. Fire the supervisors to cut costs.
B.
You have been hired as a consultant to determine the appropriate plant size for this firm. The firm provides you with the graph above and the fact that they want to produce at the q* level of output. Based on the graph above, which plant size would you recommend? A. Plant size 1 B. Plant size 2 C. Plant size 3 D. Cannot make a recommendation on plant size based on this information.You have been hired as a consultant to determine the appropriate plant size for this firm. The firm provides you with the graph above and the fact that they want to produce at the q* level of output. Based on the graph above, which plant size would you recommend? A. Plant size 1 B. Plant size 2 C. Plant size 3 D. Cannot make a recommendation on plant size based on this information.
B.
All possible combinations of two goods that could be produced with a fixed amount of resources can be depicted best by: A. a supply curve B. an average total cost curve C. the production possibility frontier D. the cross-price elasticity of supply
C
The marginal cost of consuming each cup of coffee is $1.50, while the marginal benefit derived is $4 for the first cup, and decreases by $1 for each cup consumed thereafter. A rational decision maker will consume: A. 1 cup of coffee B. 2 cups of coffee C. 3 cups of coffee D. 4 cups of coffee
C
You manage a company that has recently opened a production facility in a southern Chinese province. Suppose a new virus has appeared in China, that when caught, leaves an individual sick for several weeks. A new vaccine has been developed that will protect people in China from the virus. Assuming China's health care system and vaccine allocation is command-oriented rather than market-oriented, you can expect that... A. Price will allocate this vaccine in such a way that everyone will get the vaccine that needs it. B. A central planner will allocate the vaccine in such a way that everyone who is willing and able to pay for the vaccine will get it. C. A central planner will attempt to allocate the vaccine in such a way that everyone will get the vaccine who needs it. D. Price will allocate this vaccine in such a way that everyone who is willing and able to pay for the vaccine will get it.
C
You serve on the board for a corporation that meets annually to make long-range planning decisions. The graph above represents the long run average total cost curve your firm faces. If the firm is currently operating at point ___ and you wish to cut per unit costs your best strategy would be to decrease plant size (downsize). A. A B. B C. C D. There is no point on the graph above that corresponds to decreasing our plant size.
C
If Q = 10, AFC=$5. If Q=20, AVC=$20. The total cost of producing twenty units of output is: A. $400 B. $250 C. $450 D. $300
C.
If a firm is making zero economic profit, it A. will be forced to shut down and leave the market. B. will also generally be making zero accounting profit. C. is doing as well as typical firms in other markets. D. will not survive in the long run.
C.
If the above graph represents a monopoly market, then the profit-maximizing quantity will be _____ and the profit-maximizing price will be _____. A. Q1 and P1 B. Q2 and P3 C. Q2 and P1 D. Q4 and P2
C.
In perfect competition, no individual producer can significantly affect the market price because A. The market is regulated by the government B. Each producer is ignorant of the market price C. Each producer provides a very small portion of the total market supply D. Strictly enforced collusion prevents any producer from acting independently E. Each firm's product is so different that there is no market price
C.
Short run production decisions are: A. constrained because all inputs are variable. B. constrained because all inputs are fixed. C. constrained because some inputs are fixed while others are variable. D. unconstrained.
C.
The U.S. economy is an example of A. a pure market economy B. a pure command economy C. a mixed economy D. none of the above
C.
The deadweight loss that results from the imposition of a tax represents: A. consumer surplus that is transferred away from consumers and to the government in the form of tax revenue. B. producer surplus that is transferred away from producers and to the government in the form of tax revenue. C. a loss in consumer and producer surplus since no one receives the surplus and it is not transferred to government. D. a loss in government revenue.
C.
The difference between production possibilities curves that are bowed out and those that are straight lines is that A. bowed-out production possibilities curves apply to economies that face tradeoffs, whereas straight-line production possibilities curves apply to economies that do not face tradeoffs. B. bowed-out production possibilities curves apply to economies in which resources are not specialized, whereas straight-line production possibilities curves apply to economies in which resources are specialized. C. bowed-out production possibilities curves illustrate increasing opportunity cost, whereas straight-line production possibilities curves illustrate constant opportunity cost. D. straight-line production possibilities curves illustrate real-world conditions, whereas bowed-out production possibilities curves illustrate more simplistic assumptions.
C.
The following represent fixed inputs in the short run for Bob: A. Professional printer and printing machine. B. Professional printer and ink. C. Retail shop and printing machine. D. Retail shop and special calendar paper.
C.
The law of diminishing marginal returns (also called the law of diminishing marginal productivity) states that A. in the long-run the additional output produced from adding additional inputs must always decrease. B. in the long-run the additional output produced from adding additional inputs must not change. C. in the short-run the additional output produced from adding additional inputs must eventually decrease. D. in the short-run the additional output produced from adding additional inputs must always decrease.
C.
What are the average total costs of producing 4 Burritos-As-Big-As-Your-Head? A. 2 B. 4 C. 8 D. 10 E. 31
C.
What happens to the equilibrium price and quantity of pottery pots, if i.) the price of clay (an input in pot production) rises at the same time ii) that people's income increases. Assume that pottery pots are a normal good. A. The equilibrium price increases and the equilibrium quantity increases B. The equilibrium price increases and the equilibrium quantity falls C. The equilibrium price increases and the equilibrium quantity is indeterminate D. The equilibrium price is indeterminate and the equilibrium quantity increases
C.
What is the average fixed cost of producing 100 calendars? A. $1.32 B. $100 C. $200 D. $201.32
C.
Which of the following is NOT a possible reason that Economies of Scale might occur? A. The use of mass production techniques. B. Quantity discounts on factors of production. C. Organizational complexity, coordination problems, and bureaucratic inefficiencies. D. Increased opportunities for specialization and division of labor.
C.
Which of the following is a positive economic statement? A. Congress should increase the legal minimum wage to decrease excessive profits. B. An increase in the legal minimum wage is a good idea. C. An increase in the legal minimum wage would cause the level of unemployment to decline. D. The minimum wage should be increased so that the poor will have a better life.
C.
Ben lives in Bergovia, where everyone is guaranteed the same amount of food regardless of how much they work. Jerry lives in Krogestan, where no one is guaranteed a minimum level of food. What you earn is what you eat. Which property would you expect to see when observing these countries? A. Bergovia is defined by private property rights. B. Bergovia is a capitalist society. C. In Krogestan the government decides what to produce. D. The invisible hand is the allocating mechanism in Krogestan.
D
If the market equilibrium price for this product is $8, then the profit maximizing output level you select for the firm would be A. 24 units of output B. 30 units of output C. 32 units of output D. 34 units of output
D
You need to register for one more class for next spring. Your 3 options are Economics 202, Accounting 201, and Economics 391. If you decide to take Economics 202 then your opportunity cost is: A. Economics 391 B. Accounting 201 C. both Economics 391 and Accounting 201 D. Economics 391 or Accounting 201, whichever class was your second best option.
D
A perfectly competitive firm faces a ________ demand curve while a monopolist faces a _______ demand curve. A. perfectly inelastic; downward sloping B. downward sloping; perfectly elastic C. downward sloping; perfectly inelastic D. perfectly elastic; downward sloping
D.
If the supply of coffee falls due to bad weather conditions in coffee-exporting countries, then the A. Equilibrium price and equilibrium quantity will rise B. Equilibrium price and equilibrium quantity will fall C. Equilibrium price will fall and equilibrium quantity will rise D. Equilibrium price will rise and equilibrium quantity will fall
D.
In the principal/agent relationship between the manager at McDonalds and a cashier at McDonalds, A. the cashier and manager are both considered agents B. the cashier and the manager are both considered principals C. the cashier is the principal and the manager is the agent D. the cashier is the agent and the manager is the principal
D.
Refer to the graphs below. Suppose Jim produces apples and robots. Suppose Jim makes a technological discovery that allows him to become more efficient in the production of apples but does NOT affect his ability to produce robots. Which graph below shows the most likely impact on Jim's PPF.
D.
The above graph shows the planning curve for our classes' firm. If we are currently at point A, we are experiencing: A. decreasing marginal returns, (diminishing marginal product) B. decreasing returns to scale, (diseconomies of scale) C. increasing marginal returns, (increasing marginal product) D. increasing returns to scale, (economies of scale)
D.
The profit-maximizing rule states that a producer should select their output level where: A. marginal revenue is equal to average total cost B. marginal cost is equal to total revenue C. marginal revenue is equal to total cost D. marginal revenue is equal to marginal cost
D.
The total cost to produce 100 calendars is: A. $132 B. $10,132 C. $20,000 D. $20,132
D.
What are the total variable costs of producing 2 Burritos-As-Big-As-Your-Head? A. 1 B. 4 C. 10 D. 14 E. 22
D.
When a negative externality is present, then from society's point of view, the private market provides A. just the right amount of the product. B. none of the product. C. too little of the product. D. too much of the product.
D.
When economic efficiency occurs in a market, it implies that A. P = MC at the last unit exchanged. B. the willingness of consumers to pay is equal to the producer's opportunity cost for the last unit exchanged. C. all activities that generate more benefits than costs were undertaken in that market. D. All of the above.
D.
Which does NOT help to determine the elasticity of demand? A. The amount of time consumers have to respond to a price change. B. How much of a necessity the item is considered to be. C. The number of substitutes the product has. D. The length of time it takes producers to make the product.
D.
Which of the following is NOT an assumption of the perfectly competitive (price taker) market structure model? A. homogeneous goods B. large number of firms C. large number of buyers D. large economic profits
D.
Which would most likely result in a decrease in the demand for paint? A. An increase in the price of paint B. Increased home construction C. An increase in the population D. A reduction in the price of wallpaper, a substitute for paint
D.
You go to the Farmer's Market on Saturdays because you want tomatoes that are fresher than those you get at Meijer. Farmers sell their vegetables at the Market because they have surplus they would like to get rid of to make some extra money. You act in your own self interest, the farmers act in their self interest, yet you're both made better off by going to the Farmer's Market. In economic terms, what best describes this situation? A. coordination by the invisible foot. B. coordination through city government rationing. C. coordination by the invisible handshake. D. coordination by the invisible hand.
D.
The practice of scalping generally moves the price in a market away from the true market equilibrium price.
False. It usually moves the price TOWARD the true market equilibrium price.
You currently manage a company that produces soccer balls and you market your product globally. You plan to expand production and export to one additional country over the next few months. You are considering country A and country B. These countries are of similar size and you expect the size of the demand for your product to be about the same in each country. However, you have been informed that the government of country A will impose a tariff on your soccer balls and the government of country B will impose a quota on the number of soccer balls you export to their country. You estimate that while both policies will reduce the number of soccer balls you sell in those countries, you will sell the same number of balls in each country. If you must select one country in which you think your company will make the biggest profit, you would be more likely to chose country A than country B.
False. Quota's sell less for more, while tariffs sell more for less.
The firm depicted below operates in a monopolistic market structure. This firm is earning a positive economic profit.
False. The ATC falls above the actual profit line. Draw actual lines out on the chart.
Suppose that asymmetric information exists in a market and the product in this market has the potential for harmful side effects for consumers. From Society's viewpoint, the market output level is lower than the socially optimal output level.
False. The market output level would be higher than the socially optimal output level.
The minimum wage is binding when placed below the true market equilibrium wage rate.
False. The minimum wage is binding when placed ABOVE the true market equilibrium wage rate.
A hard freeze in Florida that destroys 50% of the orange crop would cause the orange juice supply curve to shift to the right.
False. This would lead to a reduction in production.
Aziz decides to enroll in an organic chemistry course. By the end of the semester he ends up failing the course. Despite this negative outcome, an economist would still say that Aziz was "rational" when making his decision to enroll in the course.
True
Bob would have to be paid $100 to be willing to shave his head. Ann would have to be paid $1,000 to be willing to shave her head. George would have to be paid $200 to be willing to shave his head. If I pay $200 to any of the three students willing to shave their heads, the total amount of producer surplus that will result is $100.
True
If Coke and Pepsi are substitutes in consumption, then when the price of Coke rises, the demand curve for Pepsi will shift to the right.
True
Labor services provided by the firm's owner without reimbursement to the owner are a good example of an implicit cost of business for a firm.
True
Ricardo's PPF for the production of birdhouses (B) and dog houses (D) is represented by the equation B = 8 - 2D. This equation implies that, for Ricardo, the opportunity cost of making one dog house is two birdhouses.
True
The current, federally mandated minimum wage is $7.25 per hour.
True
The demand for Hershey's chocolate bars will be more elastic than the demand for chocolate candy.
True. There are more substitutes for Hersheys (Kitkat, Reeses, etc) compared to regular chocolate.