ECO 101 Final Exam

Samba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for $5 per pound. His average total cost of catching shrimp is $3 per pound. Samba's annual total profit is

$8000

A profit-maximizing competitive firm is earning a profit of $24,000. Its marginal cost is $17 and its average total cost is $13. How many units of output is the firm producing and selling?

6000

Suppose that a small family farm sold its output for $110,000 in a given year. The family spent $20,000 on fuel, $30,000 on seed, fertilizer, and pesticides, and $25,000 on equipment, including maintenance. The family members could have earned $30,000 working at other occupations, the accounting profit for the family farm is [A], the economic profit for the family farm is [B], (please put your answer for both accounting and economic profit in numerical values without any dollar sign, comma or decimal places.) Should the family open the family farm? [C], (please put your answer as either yes or no, lower cases only). If the family members opportunity cost of their time increases and now, they could earn $35,000 working elsewhere, the accounting profit for the family farm is [D], the economic profit for the family farm is [E], (please put your answer for both accounting and economic profit in numerical values without any dollar sign, comma or decimal places.) Suppose instead the family members could now earn $40,000 for working elsewhere, should the family open the family farm [F], please put your answer as either yes or no, lower cases only).

A.) 35000 B.) 5000 C.) YES D.) 35000 E.) 0 F.) NO

In a country called The Gambia, the equation of the domestic demand curve for wheat is, QD = 200 -2P where QD represents the domestic quantity of Wheat demanded, in tons, and P represents the price of a ton of Wheat. For The Gambia equation of the domestic supply curve for Wheat is, -60 + 3P,where QS represents the domestic quantity of Wheat supplied, in tons, and again P represents the price of a ton of wheat. If Gambia prohibits international trade in wheat, then the equilibrium price of a ton of wheat is [A] and quantity is [B] tons, (please put your answer for price and quantity in numerical values without any dollar sign, comma or decimal place). Suppose the world price of wheat is $45 and The Gambia is now open for international trade. Then Gambia's consumers demand [C] tons and producer's supply [D] tons, (please put your answer for consumer demand and producer supply in numerical values without any dollar sign, comma or decimal place). Suppose the world price of wheat is $45. Then Gambia's gains from international trade in wheat amount to [E], (please put your answer in numerical values without any dollar sign, comma or decimal place). Suppose the world price of wheat is $45. Then, relative to the no-trade situation, international trade in wheat, benefits Gambian consumers by [F] and harms Gambian producers by [G], (please put your answers in numerical values without any dollar sign, comma or decimal place). Suppose the world price of Wheat is $60 and The Gambia opens for international trade. Then Gambia's gains from international trade in wheat amount to [H], (please put your answer in numerical values without any dollar sign, comma or decimal place). Suppose the world price of wheat is $60. Then, relative to the no-trade situation, international trade in wheat harms Gambians consumers by [I] and benefits Gambians producers by [J], (please put your answers in numerical values without any dollar sign, comma or decimal place). Exports and Imports Suppose the world price of wheat is $48, then Gambia should [K], (please put your answers as either import or export, lower cases only). Suppose the world price of wheat is $65, then Gambia should [L], (please put your answers as either import or export, lower cases only).

A.) 52 B.) 96 C.) 110 D.) 75 E.) 122.5 F.) 721 G.) 598.5 H.) 160 I.) 704 J.) 864 K.) import L.) export

Suppose you are a consultant for New York's taxation authority. The following information describe the demand and supply functions for two goods - Beer and Cigarettes: Beer: P = 125 - 2Q, P = 5 + 2Q Cigarette: P = 200 - 4Q, P = 20 + Q Market Equilibrium and Efficiency In the market for Beer, the equilibrium price is [A] and equilibrium quantity is [B], the consumer surplus is [C], the producer surplus is [D], please put your answer for price, quantity, consumer surplus and producer surplus in numerical values without any dollar sign, comma or decimal place). In the market for Cigarette, the equilibrium price is [E] and equilibrium quantity is [F], the consumer surplus is [G], the producer surplus is [H], please put your answer for price, quantity, consumer surplus and producer surplus in numerical values without any dollar sign, comma or decimal place). Taxation Suppose you can choose only ONE of the two goods to apply an excise tax on the producer side of the particular market. Option 1: Apply the excise tax of $10/Can to beer Option 2 Apply the excise tax of $10/Pack to cigarette Remember, in analyzing the taxation on each good and choosing the appropriate option in each case, you as a consultant must know the equilibrium traded price and quantity after taxation, the price that producers receive at the new equilibrium, tax revenue, consumer's tax incidence, producer's tax incidence and deadweight loss for both options. In the Beer market, the government tax revenue is [I], the consumers tax incidence is [J], the producers tax incidence is [K], the dead weight loss is [L], (please put your answer for tax revenue, deadweight loss, consumers and producers tax incidences, in numerical values without any dollar sign, comma or decimal place). In the Cigarette market, the government tax revenue is [M], the consumers tax incidence is [N], the producers tax incidence is [0], the dead weight loss is [P], (please put your answer for tax revenue, deadweight loss, consumers and producers tax incidences, in numerical values without any dollar sign, comma or decimal place). Tax Consultation. As a tax consultant, which option should the taxation authority choose if they wishes to maximize her tax revenue? [Q], (please put your answer as either option 1 or option 2, all lower cases). Which option should the taxation authority choose if they wishes to minimize the consumer's burden? [R], (please put your answer as either option 1 or option 2, all lower cases). Which option should the taxation authority choose if they wishes to minimize the producer's burden? [S], (please put your answer as either option 1 or option 2, all lower cases). Which option should the taxation authority choose if she wishes to minimize the deadweight loss? [T], (please put your answer as either option 1 or option 2, all lower cases).

A.) 65 B.) 30 C.) 900 D.) 900 E.) 56 F.) 36 G.) 2592 H.) 648 I.) 275 J.) 137.5 K.) 137.5 L.) 12.5 M.) 340 N.) 272 O.) 68 P.) 10 Q.) option 2 R.) option 1 S.) option 2 T.) option 2

Which of the following is a tax on labor? a.) Medicare tax b.) Social Security tax c.) Federal Income tax d.) All of the above are labor taxes

D.) All of the above are labor taxes

Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. The supply for cigars is less elastic than the demand of cigars.

False

PlayStations and PlayStation games are complementary goods. A technological advance in the production of PlayStations will increase consumer surplus in the market for PlayStations and decrease producer surplus in the market for PlayStation games

False

Trade between countries must benefit both countries equally; otherwise, trade is not mutually beneficial

False

Aja Fatou owns a rental space in New York and is thinking of opening a restaurant in that space. An accountant looks at the estimated out of pocket costs and expected revenues. He informs Aji Fatou that the restaurant will make profits. But Aji Fatou's economist friend tells her that the restaurant business is not likely to be profitable. Reconcile the accountant's finding with that of the economist. How can they both be correct?

The accountant only looks at the explicit costs of production whereas an economist looks at the opportunity cost of production which is the sum of explicit and implicit costs

A country has a comparative advantage in a product if the world price is higher than that country's domestic price without trade

True

An economy's production possibilities frontier is also its consumption possibilities frontier, when the economy is self-sufficient.

True

Competitive firms will always make zero profit in the long run.

True

Corn chips and potato chips are substitutes. Good weather that sharply increases the corn harvest would increase consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips

True

Domestic producers of a good become worse off, and domestic consumers of a good become better off, when a country begins allowing international trade in that good and the country becomes an importer of the good as a result.

True

If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then its average total cost is less than $10.

True

Suppose a tax is imposed on bananas and the response of buyers and sellers to a change in the price of bananas is strong, the tax will cause the equilibrium quantity of bananas to shrink by the largest amount.

True

Suppose a tax is imposed on baseball bats, and the response of buyers and sellers to a change in the price of baseball bats is weak, the tax will cause the equilibrium quantity of baseball bats to shrink by the smallest amount.

True

When a country allows trade and becomes an exporter of a good, domestic producers become better off, and domestic consumers become worse off

True

Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. What is your aunt's opportunity cost of running the hardware store for a year? If your aunt thinks she can sell $510,000 worth of merchandise in a year. Should she open the store? Explain

Your aunt's opportunity cost of running the hardware store for a year is $500,000 (explicit cost) + $50,000 = $550,000.00. Economic profit = $510,000 - $550,000 = -$40,000. You aunt should not open the store because she will make an economic loss of $40,000. Even though the accounting profit is $10,000 but she will make $40,000 more for taking the accountant job.

Suppose that a small hair styling salon had revenues of $150,000 in a given year. The owner spent $10,000 on utilities, $60,000 on supplies (shampoo, conditioner, hair coloring and other chemicals, etc.), and $50,000 on equipment (mirrors, chairs, scissors, curling irons, etc.), including maintenance. The owner could have earned $50,000 working at another salon. a.) What is the accounting profit for the hair styling salon? b.) What is the economic profit for the hair styling salon?

a.) 30000 b.) -20000

Camara's lawn-mowing service is a profit-maximizing competitive firm. Camara mows lawn for $27 each. His Total Cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. a.) Should Camara stay in business in the long-run or exit the market? Explain. b.) Should Camara continue to operate or shutdown in the short-run? Explain.

a.) TR = $27*10 = $270 <$280, SO Camara should exit. b.) VC = TC - FC = $280 - 30 = $250 < $270, so Camara should operate in the SR.

The price elasticities of supply and demand affect

both the size of the deadweight loss from a tax and the tax incidence

The demand for chicken wings is more elastic than the demand for razor blades. Suppose the government levies an equivalent tax on chicken wings and razor blades. The deadweight loss would be larger in the market for

chicken wings than in the market for razor blades because the quantity of chicken wings would fall by more than the quantity of razor blades

To fully understand how taxes affect economic well-being, we must

compare the reduced welfare of buyers and sellers to the amount of revenue the government raises

A tax on the sellers of coffee mugs

decreases the size of the coffee mug market

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year

Suppose the U.S. and Japan can both produce airplanes and televisions and the U.S. has a comparative advantage in the production of airplanes while Japan has a comparative advantage in the production of televisions. Also suppose the U.S. has an absolute advantage in the production of both airplanes and televisions. The U.S. should

export airplanes to Japan and import televisions from Japan

The less freedom people are given to choose the date of their retirement, the

less elastic is the supply of labor

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 20 bushels of corn or 5 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. Which of the following statements is true?

neither country could gain from trade with each other because neither one has a comparative advantage

Suppose Iceland goes from being an isolated country to being an exporter of coats. As a result,

producer surplus increases for producers of coats in Iceland

If the world price of coffee is lower than Colombia's domestic price of coffee without trade, then Colombia

should import coffee

For a construction company that builds houses, which of the following costs would be a fixed cost?

the $60,000 per year salary paid to the company's bookkeeper

After a country goes from disallowing trade in coffee with other countries to allowing trade in coffee with other countries,

the domestic price of coffee will equal the world price of coffee

A competitive firm currently produces and sells 500 units of output. Its total revenue is $3,500; the marginal cost of producing the 500th unit of output is $5.75; and the average total cost of producing the 500th unit of output is $4.00. Is the firm maximizing its profit, or should it increase or decrease output in order to increase its profit?

the firm should increase output to raise profit

Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if

the opportunity cost of producing a bushel of wheat lower for Canada than it is for the us

Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

the united states should produce more pork than what is requires and export some of it to Mexico

Trade between countries allows each country to consume at a point outside its production possibilities front

true