Economics Mid-Term 2 Review

Suppose that Firms A and B each produce high-resolution monitors, but Firm A can do so at a lower. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. If Firm B produces a monitor that David buys, then the market outcome illustrates which of the following principles? (i) Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay (ii) Free markets allocate the demand for goods to the sellers who can produce them at the least A. (i) only B. (ii) only C. (ii) only D. neither (i) not (ii)

A. (i) only

(Based on Assumption) At Q = 999, the firm's total costs equal: A. 10985 B. 10990 C. 10995 D. 10999

A. 10985

(Based on Graph) At equilibrium, consumer surplus is: A. 18 B. 36 C. 54 D. 72

A. 18

(Based on Table) How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome? A. 2 B. 3 C. 9 D. 10

A. 2

(Based on Graph) The amount of deadweight loss as a result of the tax is: A. 2.5 B. 5 C. 7.5 D. 10

A. 2.5

(Based on Graph) At equilibrium, producer surplus is: A. 36 B. 72 C. 54 D. 18

A. 36

(Based on Table) If the government charged a fee of $69 per unit of pollution, how many units of pollution would the firms eliminate altogether? A. 7 B. 8 C. 9 D. 10

A. 7

(Based on Graph) At equilibrium, total surplus is measured by the area: A. ABD B. ABF C. FBD D. HGCI

A. ABD

(Based on Graph) If the government imposes a price ceiling, then producer surplus is: A. CDI B. BDF C. BCIF D. HGCD

A. CDI

(Based on Graph) The firm experiences of scale if it changes its level of output from: A. Q1 to Q2 B. Q2 to Q3 C. Q3 to Q4 D. Q4 to Q5

A. Q1 to Q2

(Based on Graph) The imposition of the tax causes the price received by sellers to: A. decrease by $2 B. increase by $3 C. decrease by $4 D. increase by $5

A. decrease by $2

The Surgeon General announces that eating apples promotes healthy teeth. As a result, the equilibrium price of apples: A. increases, and producer surplus increases B. increases, and producer surplus decreases C. decreases, and producer surplus increases D. decreases, and producer surplus decreases

A. increases, and producer surplus increases

(Based on Graph) If 10 units of good are produced and sold, then: A. the marginal cost to sellers exceeds the marginal value to buyers B. producer surplus is maximized C. total surplus is minimized D. the marginal value to buyers exceeds the marginal cost to sellers

A. the marginal cost to sellers exceeds the marginal value to buyers

(Based on WTP) If there is only one unit of good and if the buyers bid against each other for the right to purchase it, then the consumer surplus will be: A. $0 or slightly more B.$10 or slightly less C. $30 or slightly more D. $45 or slightly less

B. $10 or slightly less

(Based on Graph) The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is: A. 0 B. 1 C. 2 D. 3

B. 1

(Based on Graph) The loss of consumer surplus associated with some buyers dropping out of the market as a result of the tax is: A. 0 B. 1.5 C. 3 D. 4.5

B. 1.5

(Based on Table) Assume the Wooden Chair Factory currently employs 2 workers. What is the marginal product of labor when the factory adds a 3rd worker? A. 5 chairs/hour B. 10 chairs/hour C. 20 chairs/hour D. 25 chairs/hour

B. 10 chairs/hour

(Based on Assumption) At Q = 1000, the firm's profit equal: A. -200 B. 1000 C. 3000 D. 4000

B. 1000

(Based on Table) Assume the Wooden Chair Factory currently employs 5 workers. What is the marginal product of labor when the factory adds a 6th worker? A. 5 chairs/hour B. 15 chairs/hour C. 25 chairs/hour D. 70 chairs/hour

B. 15 chairs/hour

(Based on Table) What is the socially-optimal quantity of output in this market? A. 1 B. 2 C. 3 D. 4

B. 2

(Based on Graph) The per-unit burden of tax on buyers is: A. 2 B. 3 C. 4 D. 5

B. 3

(Based on Table) What is the equilibrium quantity of output in the market? A. 2 B. 3 C. 4 D. 5

B. 3

(Based on Table) Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is$20 per day regardless of the number of chairs produced. Assume the number of machines does not change. If the factory produces at a rate of 78 chairs per hour, what is the total machine cost per day? A. 20 B. 40 C. 240 D. Unable to determine machine costs from the information given

B. 40

(Based on Table) Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. If the factory produces at a rate of 35 chairs per hour, what is the total labor cost per hour? A. 40 B. 48 C. 384 D. 424

B. 48

(Based on Table) Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price of the permits? A. 69 B. 81 C. 83 D. 97

B. 81

(Based on Table) If the government wanted to eliminate exactly 11 units of pollution, which of the following fees per unit of pollution would achieve that goal? A. 75 B. 87 C. 90 D. 106

B. 87

(Based on Graph) If the government imposes a price floor at $18, then consumer surplus is: A. ABF B. AGH C. HGCD D. HGBF

B. AGH

(Based on Graph) The experiences constant returns to scale if it changes its level output from: A. Q1 to Q2 B. Q2 to Q4 C. Q1 to Q3 D. Q4 to Q5

B. Q2 to Q4

A gym membership at a gym that always has space in classes and on machines is an example of: A. private goods B. club goods C. common resources D. public goods

B. club goods

(Based on Graph) The imposition of the tax causes the price paid by buyers to: A. decrease by $2 B. increase by $3 C. decrease by $4 D. increase by $4

B. increase by $3

Which of the following goods is the best example of a public good? A. garbage-collection services that are provided by a municipal government B. music that is broadcast over the airwaves by a privately-owned FM radio station C. electricity that is provided to farmhouses by rural electric cooperative D. cable TV services that are provided by a privately-owned firm that is regulated by the government of the city in which it operates

B. music that is broadcast over the airwaves by a privately-owned FM radio station

(Based on Assumption) At Q = 999, the firm's profit equal: A. 993 B. 997 C. 1003 D. 1007

C. 1003

(Based on Graph) The loss of producer surplus for those sellers of the good who continue to sell it after the tax is imposed is: A. 0 B. 1 C. 2 D. 3

C. 2

(Based on Table) Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the cost of building the park equally. If the residents vote to determine the size of park to build, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the largest park size for which the majority of residents would vote "yes"? A. 0 B. 1 C. 2 D. 3

C. 2

(Based on Graph) The loss of producer surplus as a result of the tax is: A. 1 B. 2 C. 3 D. 4

C. 3

(Based on Graph) The loss of consumer surplus as a result of the tax is: A. 1.5 B. 3 C. 4.5 D. 6

C. 4.5

(Based on Graph) The amount of tax revenue received by the government is: A. 2.5 B. 4 C. 5 D. 9

C. 5

(Based on Table) Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is$20 per day regardless of the number of chairs produced. What is the total daily cost of producing at a rate of 55 chairs per hour if the factory operates 8 hours per day? A. 480 B. 576 C. 520 D. 616

C. 520

(Based on Table) Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. If the factory produces at a rate of 70 chairs per hour and operates 8 hours per day, what is the factory's total labor cost per day? A. 72 B. 112 C. 576 D. 616

C. 576

A tornado siren in a small town is an example of: A. private goods B. club goods C. common resources D. public goods

C. common resources

Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, ) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should: A. drop the flight immediately B. continue the flight C. continue flying until the lease expires and then drop the run D. drop the flight now but renew the lease if conditions improve

C. continue flying until the lease expires and then drop the run

(Based on Assumption) To maximize its profit, the firm should: A. increase its output B. continue to produce 1000 units C. decrease its output but continue to produce d. shutdown

C. decrease its output but continue to produce

(Based on Table) Which of the following statements is correct? A. if the external benefit per unit were $0 instead of $2, then the socially efficient quantity output would be 4 units B. a tax of $4 per unit would enable this market to move from the equilibrium quantity of output to the socially optimal level of output C. taking the external cost into account, total surplus declines when the 3rd unit of output is produced and consumed D. the market for flu shots is a market to which the concepts in this table apply very well

C. taking the external cost into account, total surplus declines when the 3rd unit of output is produced and consumed

Graph for Questions 54 - 57 (1 - 4)

Chapter 13

(Based on Table) If the government charged a fee of $84 per unit of pollution, how many units of pollution would the firms eliminate altogether? A. 7 B. 8 C. 9 D. 10

D. 10

(Based on Table) The Wooden Chair Factory experiences diminishing marginal product of labor with the addition of which worker? A. 3rd Worker B. 4th Worker C. 5th Worker D. 6th Worker

D. 6th Worker

(Based on Table) If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal? A. 67 B. 68 C. 81 D. 83

D. 83

(Based on WTP) Who experiences largest loss of consumer surplus when the price of the good increases from $20 - $22? A. Quilana B. Wilbur C. Ming-la D. All three buyers experience same loss of consumer surplus

D. All three buyers experience same loss of consumer surplus

(Based on Graph) The firm experiences diseconomies of scale if it changes its level of output from: A. Q1 to Q2 B. Q2 to Q3 C. Q3 to Q4 D. Q4 to Q5

D. Q4 to Q5

Which of the following represents a way that a government can help the private market to internalize an externality? A. taxing goods that have negative externalities B. subsidizing goods that have positive externalities C. the government cannot improve upon the outcomes of private markets D. both A and B are correct

D. both A and B are correct

(Based on Graph) The 3 average total cost curves on the diagram labeled ATC1, ATC2, and ATC3 most likely correspond to 3 different: A. time horizons B. products C. firms D. factory sizes

D. factory sizes

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs/week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do? A. shut down the business B. produce more custom-made shoes C. decrease the price D. produce fewer custom-made shoes

D. produce fewer custom-made shoes

Emma's use of good x does not affect anyone else's use of good x. Neither Emma nor anyone else can be prevented from using the good. Good x is an example of the type of good that belongs in: A. private goods B. common resources C. club goods D. public goods

D. public goods

Acres: 1 - 2 - 3 - 4 - 5 - 6 - 7 Sophia: $10 - $8 - $6 - $3 - $1 - $0 - $0 Amber: $24 - $18 - $14 - $8 - $6 - $4 - $2 Cedric: $6 - $5 - $4 - $3 - $2 - $1 - $0

Question 43 (10) Town of Springfield with only 3 residents, Sophia, Amber, and Cedric. The 3 residents are trying to determine how large, in acres, they should build the public park. Table below shows each resident's willingness to pay for each acre of the park.

Chapter 7: Consumers , Producers and the Efficiency of Markets

Questions 2 - 7 (1 - 6) Based on the Graph

Quantity: 1 - 2 - 3 - 4 - 5 - 6 - 7 Private Value: $14 - $13 - $12 - $11 - $10 - $9 - $8 Private Cost: $10 - $11 - $12 - $13 - $14 - $15 - $16 External Cost: $2 (all)

Questions 26 - 29 (1 - 4) Table shows the private value, private cost, and external cost for various quantities of output in a market

Units to be eliminated: Firm A - Firm B - Firm C - Firm D 1st Unit: 54 - 57 - 54 - 62 2nd Unit: 67 - 68 - 66 - 73 3rd Unit: 82 - 86 - 82 - 91 4th Unit: 107 - 108 - 107 - 111

Questions 33 - 37 (1 - 5) Table shows the marginal costs for each firm to eliminate units of pollution from their production processes. Example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67.

# of Workers: 1 - 2 - 3 - 4 - 5 - 6 - 7 # of Machines: 2 (all) Output (Chairs/hour): 5 - 10 - 20 - 35 - 55 - 70 - 80 MPL: 5 - 5 - 6.67 - 8.75 - 11 - 11.67 - 11.43 $ for Workers: $12 - $24 - $ 36 - $48 - $60 - $72 - $84 $ for Machines: $40 (all), $20/machine Total Cost: $52 - $64 - $76 - $88 - $100 - $112 - $124 Marginal Cost: $2.40 - $1.20 - $.80 - $.60 - $.80 - $1.20

Questions 46 - 52 (1 - 7) Wooden Chair Factory Table L = # of Workers Q = Output (MPL) Marginal Product of Labor = change of Q/change of L $ for Workers = Variable Cost $ for Machines = Fixed Cost Total Cost = Fixed Cost + Variable Cost Marginal Cost = change of TC/change of Q

Chapter 14: Firms in Competitive Markets

Questions 59 - 62 (5-8) Based on Assumption Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.

Willingness To Pay (WTP) Carlos - $15 Quilana - $25 Wilbur - $35 Ming-la - $45

Questions 9 - 10 (7 - 8) Based on WTP

Chapter 8: Applications: The Costs of Taxation

The vertical distance between points A and B represents a tax in the market (Based on Graph)