Econ Practice Exams 1, 2, & 3

What is the marginal revenue product of the fourth worker?

MR*P (2*$200) = $400

For normal goods

a tax cut on consumer income will lead to a rise in their demand.

An increase in producer surplus would most likely occur if:

an effective price floor was imposed.

If a company engages in perfect price discrimination, it is attempting to

charge each customer their reservation price.

(Figure: Graph) Refer to the graph to answer the question. In the graph, the movement from point P to point Q represents (point goes down the demand curve)

decrease in quantity demanded.

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

Almira is a chocolatier with a small chocolate shop. There are three other chocolatiers in her city. Almira should be concerned that new companies will enter her city's chocolate market and take away some of her customers if the average chocolatier in her city:

is earning economic profits.

A rational buyer will:

keep buying a product until marginal benefit equals price.

The producer surplus on a unit sold equals:

price minus marginal cost.

Employers use educational background and degrees obtained to indicate an applicant's:

productivity and certain traits.

An import is a good or service:

purchased from a foreign seller.

When the government requires that a person have a license to work in a particular occupation, then in the labor market for that occupation:

supply decreases.

Sellers bear a smaller incidence of a tax when:

supply is more elastic relative to demand.

The cost of working one more hour is

the hour of leisure that is given up.

Consider the data in the table. The price of gasoline is $3.99 per gallon at the gas station. If Rexhall Fuel Supplies is a rational seller, how many gallons of gasoline should this seller be willing to sell?

the quantity at price $3.99

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

can do the task with the lowest opportunity cost.

What type of good is nonrival and excludable?

club goods.

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

generic-brand toothpaste

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

have a hard time competing.

Diminishing marginal product leads to

rising marginal cost 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.

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

$4; $300

Neville is a lawyer at a large law firm where he earns a salary of $170,000 per year. He is thinking of leaving the firm to set up his own law office. To do this, he would need to invest $140,000 of his savings, which currently earns 5% in interest each year. He estimates that if he starts a law office, his annual revenue will be $510,000, and his explicit financial costs will be $300,000. How much would Neville earn in economic profits or losses if he starts his own law office?

$33,000

Gizelle tries to put herself in Devin's place. If she (Gizelle) charges a price of $9, then she thinks that Devin will charge ____ to earn a profit of _____.

$6; $5,000

Luana gives up a salary of $80,000 per year to start her company. She invests $50,000 of her savings in her company, savings that had been earning her $4,000 per year in interest. During Luana's first year in business, total revenue is $300,000, and her explicit financial costs are $225,000. What is Luana's accounting profit from her first year in business?

$75,000

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

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? (supply curve shifts right)

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

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.

The fidget spinner toy fad is over, and children are not buying them with the same enthusiasm as they did earlier. Which graph depicts the situation in the market for fidget spinners?

demand curve shifts left

In 2017, Kenya banned the use of disposable plastic shopping bags due to concern over plastics pollution. Which graph depicts what happened in the country's market for reusable cloth bags?

demand curve shifts right

(Figure: Market for New Housing) Which of the graphs shows the effect on the housing market today, if the realtor association predicts new housing prices to fall in a few months?

demand curve shifts to the left

(Figure: Market for Stevia) Stevia is a natural sweetener that is used as a sugar substitute. Which of the following graphs illustrates the impact of a rise in the price of Stevia on the demand for sugar?

demand curve shifts to the right

Market power determines the shape of a firm's

demand curve.

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

desirable opportunities

A compensating differential is an:

difference in wages that offsets the desirable or undesirable aspects of a job.

In a perfectly competitive labor market, the manager's hiring decision is about

how many workers to hire.

The output in a market with market power is

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

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.

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

Price discrimination through group pricing works when the basis for segmenting the consumers is _____, is _____, and separates consumers based on their _____.

verifiable; hard to change; reservation price for the product

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

market power; incentive to increase production

The distribution of wealth is _____ the distribution of income.

more unequal than

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

overproduce.

An employer who discriminates in hiring based on prejudice may end up _____.

paying a higher wage for a less productive employee

Buyers bear all the economic burden of a tax if the demand curve is _____, given an upward sloping supply curve.

perfectly inelastic

Common resources have:

private gains but shared costs.

A shortage occurs when:

quantity demanded exceeds quantity supplied.

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

(Figure: Market for Pesticides) In the market for pesticides shown here, the original equilibrium price is $25. In an effort to reduce the usage of pesticides, a tax is then placed on the buyers in this market. Who bears the statutory burden of this tax?

the buyer

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 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.

When a retailer varies price on items in ways that require buyers to spend extra time or effort to get a lower price, the retailer is using which of the following strategies to price discriminate?

Hurdle method

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

Lower costs of transportation for the producers.

Use the check mark method to determine which cell, if any, has a Nash equilibrium, and then choose the correct description.

The Nash equilibrium is Gizelle earning profit of $3,000 and Devin earning profit of $2,500.

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.

What happens in the labor market for biologists when wages in other, similar occupations fall?

There is a rightward shift of the supply curve.

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.

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

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.

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

normal goods.

Average cost equals:

total cost divided by output.

The price of a dozen eggs falls from $3 to $2.70. In response to this price change, the quantity supplied of eggs falls from 100,000 dozen eggs to 75,000 dozen eggs. What is the price elasticity of supply for eggs? (use the midpoint formula)

2.7

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; substitutes

Which of the following is an example of an in-kind transfer?

Martin receives housing from the government due to his low income.

Both Tina and Rocky are ready to buy new phones. The accessories are things like cables. What is the term for the type of game Tina and Rocky are playing?

a coordination game

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

lower prices.

Suppose that the world price of TVs is $400, and the government imposes a $100 tariff. The new price domestic consumers pay for a TV is:

$500.

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.

Which of the following would shift the labor supply curve?

The government increases its provision of childcare services.

Which of the following claims reflects normative analysis?

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

In which of the following situations would Maria's Doughnut Shop have the LEAST market power?

Within three miles, there are five other doughnut shops and three bakeries that sell breakfast pastries.

A formal agreement to limit production and raise prices leads to:

a cartel.

Survey data for Americans are illustrated in a graph with the average level of well-being reported (on the vertical axis) at each level of income (on the horizontal axis). The slope of this curve indicates the relationship between well-being and income is consistent with _____ marginal benefit for additional income.

a diminishing

The average income of actresses may not be indicative of an aspiring actress's expected earnings because:

a few superstars with extremely high earnings may skew the average income much higher than all but a few can hope to earn.

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:

above $10.

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

average costs

Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week.

less; $150

(Figure: Payoff Matrix II for Blue Spring and Purple Rain) Use Figure: Payoff Matrix II for Blue Spring and Purple Rain. The figure describes two producers of bottled water. The Nash equilibrium in the figure is reached when Blue Spring charges a _____ price and Purple Rain charges a _____ price.

low; low

Marginal revenue product is the

marginal revenue from hiring an additional worker.

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

perfectly inelastic

The percent of the population whose household income falls below the poverty line is known as the:

poverty rate.

A preconceived bias against a group that's not based on reason or experience is known as:

prejudice.

At what price does this market experience a surplus of 70 units?

price = $11 quantity demanded = 130 quantity supplied = 200

Sunk costs are costs that are incurred

regardless of which decision is made.

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

underproduction; Price discrimination

When an employer makes decisions based on statistical discrimination, it is:

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

When segmenting your market demand into groups, base them on _____ and _____ characteristics.

verifiable; difficult-to-change

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

Corinne is offered a job with a salary of $70,000, which she turns down to start her own business. She uses $20,000 of her own savings to help start the business, savings that had been providing her a return of $1,000 per year. Over her first year in business, Corinne collects total revenue of $180,000 and must cover explicit costs of $105,000. During her first year in business, Corinne's accounting profit is _____, and her economic profit is _____.

$75,000; $4,000

The price of a car wash falls by 10%. In response to this price change, the quantity demanded for car washes increases by 20%. What is the absolute value of the price elasticity of demand for car washes?

2

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

According to diminishing marginal utility, which of the following people would gain the lowest marginal benefit from an extra $100 of income?

Ariana, an actress with an annual household income of $1,500,000

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.

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

Cooperation between the players could not improve the outcome.

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

Leisure is more attractive.

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.

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 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.

Which of the following is FALSE?

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

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

elastic; lower

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?

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

equal to

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

The marginal private benefit is the:

extra benefit enjoyed by the buyer of one extra unit of a good or service.

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

fairness; maximizing economic surplus

An efficiency wage is a:

higher wage paid to encourage greater worker productivity.

Marie Johnston is a manager at an electronics store and has to decide how many workers to hire. If she hires one worker, her revenue is $800 per day. If she hires another worker, she can make another $600 per day. The marginal benefit of hiring another worker decreases by $200 with each additional hire. Assuming that workers are paid $20 per hour and work eight hours, how many employees should Marie hire, and what will be her total cost for labor?

She will hire four workers at a total cost of $640.