ECON 102 HW/Quiz Questions (5.1 -8.2)

The autarky price of oranges in Orangelandia is $10. The world price of oranges is $5. If Orangelandia imposes a $3 per unit tariff on oranges, will it import or export oranges? (6.3 HW) a) Neither b) Import c) Not enough information d) Export

NOT NEITHER

The social costs of an activity are greater than the private costs of the activity when (8.2 HW) a) a person does not pay all costs associated with a particular resource-using activity. b) the internal costs of the resource-using activity are positive. c) the internal costs of the resource-using activity are less than the external costs of the activity. d) the external costs of the resource-using activity are zero.

NOT c) the internal costs of the resource-using activity are less than the external costs of the activity. a) a person does not pay all costs associated with a particular resource-using activity. I THINK

The price per unit times the total quantity sold is (7.3 QUIZ) a) average revenue. b) total revenue. c) marginal revenue. d) price revenue.

b) total revenue.

The amount of calendar time associated with the long run (7.2 HW) a) varies by industry. b) is greater than one year. c) is between one and five years. d) is less than five years.

a) varies by industry.

Which of the following is TRUE about the long run? (7.2 QUIZ) a) All resources are fixed. b) At least one resource is fixed. c) All resources are variable. d) None of the above.

c) All resources are variable.

A tariff _____ Gains From Trade. (6.3 QUIZ) a) Increases b) Does Not Affect c) Decreases

c) Decreases

Which is always true at a firm's profit-maximizing rate of production? (7.3 HW) a) The total revenue curve lies below the total cost curve. b) Marginal Revenue > Marginal Cost c) Marginal Revenue = Marginal Cost d) Total Revenue = Total Costs

c) Marginal Revenue = Marginal Cost

When accounting profits are positive, economic profits (7.3 HW) a) will be negative. b) will equal zero. c) must be positive. d) could be positive, negative or zero.

d) could be positive, negative or zero.

The autarky price of oranges in Orangelandia is $10. The world price of oranges is $5. If Orangelandia imposes a $3 per unit tariff on oranges. What will happen to the Producer Surplus when the tariff is imposed? a) Not enough information. b) Increase c) Decrease d) Stay the same

b) Increase

A tariff _____ the price received by domestic sellers. (6.3 QUIZ) a) Does Not Affect b) Increases c) Decreases

b) Increases

If a firm is experiencing diseconomies of scale, then (7.2 HW) a) the long-run average cost curve is decreasing as output expands. b) the firm should expand the size of its operation. c) the long-run average cost curve is rising as output expands. d) proportional increases in all inputs result in proportional increases in output.

c) the long-run average cost curve is rising as output expands.

Imagine that you have to choose between two hourly jobs, being a mechanic or a bartender. If you work as a mechanic, you could earn $50 per hour. If you are a bartender your wage is $25 per hour. Calculate your opportunity cost of spending an hour working as a bartender instead of a mechanic? (Do not include the dollar sign $ in your answer) (6.1 HW)

50

If transaction costs exist, how do intermediaries earn revenue? (8.1 HW) a) they reduce transaction costs, increasing the consumer and producer surplus of anyone who uses the intermediary. b) they increase transaction costs, accruing revenue above and beyond what would be attainable without the intermediary. c) they offer to improve consumer surplus at the expense of producer surplus. d) the offer to improve producer surplus at the expense of consumer surplus. e) they don't; by definition, intermediaries require transaction costs to be nonexistent.

a) they reduce transaction costs, increasing the consumer and producer surplus of anyone who uses the intermediary.

For a hotdog vendor, the hotdog buns represents his (7.1 QUIZ) a) sunk cost. b) variable input. c) fixed input. d) none of the above.

b) variable input.

When accounting profits are negative, economic profits (7.3 HW) a) will equal zero. b) will be negative. c) must be positive. d) could be positive, negative or zero.

b) will be negative.

A price floor set above a market equilibrium price causes (5.1 HW) a) consumers to pay lower prices. b) producers to receive lower prices. c) a surplus. d) a shortage.

c) a surplus.

Congressman Murphy made the following proposal: "We should establish policies that completely eliminate air pollution. This is the only way to ensure that none of our citizens suffers the negative effects of air pollution." If Congressman Murphy's proposal was adopted and all forms of air pollution were eliminated, which of the following would be true? (8.2 HW) a) Economic efficiency would be maximized b) The total cost of pollution reductions would equal the total benefit to society. c) The total benefit to society from reductions in air pollution would be maximized. d) The marginal cost from pollution reductions would exceed the marginal benefit.

d) The marginal cost from pollution reductions would exceed the marginal benefit.

Specialization and the division of labor typically result in (6.1 QUIZ) a) a greater reliance upon imports. b) decreased output. c) cost overruns. d) increased output.

d) increased output.

The marginal revenue curve of a perfectly competitive firm (7.3 HW) a) has a vertical intercept equal to exactly one-half of the vertical intercept for the demand curve. b) intersects the average revenue curve from above at the maximum point of the average revenue curve. c) lies below the demand curve and above the average revenue curve. d) is also the demand curve faced by the firm.

d) is also the demand curve faced by the firm.

Under perfect competition, a firm that sets its price slightly above the market price would (7.2 HW) a) make lower profits than the other firms, but the amount would depend on the elasticity of demand. b) earn higher profits as long as the other firms continued to charge the market price. c) make a normal rate of return, but on reduced revenues. d) lose all of its customers.

d) lose all of its customers.

If a firm gets so large that management of employees and other resources becomes a costly problem, it will be experiencing (7.2 QUIZ) a) economies of scale. b) diseconomies of scale. c) diminishing marginal product. d) constant returns to scale.

b) diseconomies of scale.

The idea of comparative advantage is related to (6.1 HW) a) engineering efficiency. b) using the worker with the most diverse sets of skills. c) the idea of absolute advantage. d) the idea of opportunity cost.

d) the idea of opportunity cost.

Which of the following is TRUE for a firm in the long run? (7.2 HW) a) All costs are variable costs. b) Variable costs will initially increase and then decrease. c) The law of diminishing marginal product holds. d) Variable costs will equal marginal cost at all output levels.

a) All costs are variable costs.

The government imposes a price control law which causes the market to trade at a new price, and at this price, the quantity demanded is less than the quantity supplied. What kind of price control did the government impose? (5.1 HW) a) An effective price floor. b) An effective price ceiling. c) An ineffective price floor. d) An ineffective price ceiling.

a) An effective price floor.

Which of the following is TRUE about comparative advantage? (6.2 HW) a) Comparative advantage explains trade within nations and among nations. b) Comparative advantage has nothing to do with trade among nations; it only is concerned with specialization within a firm. c) Comparative advantage explains trade among nations, but not within nations. d) Comparative advantage explains trade within nations, but not among nations.

a) Comparative advantage explains trade within nations and among nations.

The autarky price of oranges in Orangelandia is $10. The world price of oranges is $5. If Orangelandia imposes a $3 per unit tariff on oranges. What will happen to the Consumer Surplus when the tariff is imposed? (6.3 QUIZ) a) Decrease b) Increase c) Stay the same d) Not enough information

a) Decrease

A tariff _____ the quantity sold by domestic sellers. (6.3 HW) a) Increases b) Decreases c) Does Not Affect

a) Increases I THINK (not C)

Why specialize? (6.1 HW) a) It usually increases productivity. b) To decrease our dependence on each other. c) There is no economic rationale for specialization. d) Because assigning each worker a variety of tasks makes her more productive.

a) It usually increases productivity.

If Kami can produce 40 tablets or 30 radios during a month's time, while Sally can produce 10 tablets or 20 radios, then it is correct to state that (6.1 QUIZ) a) Kami has a comparative advantage in producing tablets. b) Sally has a comparative advantage in producing both tablets and radios. c) Kami has a comparative advantage in producing both tablets and radios. d) Sally has an absolute advantage in tablets.

a) Kami has a comparative advantage in producing tablets.

Transaction costs impose a burden on buyers and sellers, made visible by the consumer and producer surplus they respectively lose when a transaction cost exists. What determines who bears a larger share of the burden? (8.1 HW) a) Relative elasticity; if for example demand is relatively more inelastic than supply, buyers are relatively less price-sensitive, and thus will experience a large increase in the price they face, compared to a smaller decrease in the price sellers face. b) Relative elasticity; if for example demand is relatively more elastic than supply, buyers are relatively less price-sensitive, and thus will experience a large increase in the price they face, compared to a smaller decrease in the price sellers face. c) The prices faced by the buyers and sellers; if the buyers face a higher price than the sellers, they will bear a larger share of the burden. Likewise, if buyer face a lower price than the sellers, they will bear a smaller share of the burden. d) The efficiency and interests of the intermediary; if the intermediary is consumer-oriented, they will prioritize reducing the buyer's share of the burden. Likewise, if the intermediary is producer-oriented, they will prioritize reducing the seller's share of the burden.

a) Relative elasticity; if for example demand is relatively more inelastic than supply, buyers are relatively less price-sensitive, and thus will experience a large increase in the price they face, compared to a smaller decrease in the price sellers face.

A restaurant manager notices that they have not 1, not 2, but 3 chefs. Because the chefs outnumber the cooking surfaces, the restaurant manager needs to hire an additional manager who keeps track of who is using which stove and prevents chefs from getting in each others' ways. Furthermore, now that there are two managers, the restaurant needs a third executive manager to organize responsibilities between these two managers. What issue is this restaurant running into? (7.2 HW) a) The restaurant is experiencing diseconomies of scale. b) The restaurant is experiencing economies of scale. c) The restaurant needs even more managers to approach the optimal firm size.

a) The restaurant is experiencing diseconomies of scale.

Which of the following is NOT true of an effective price control? (5.1 HW) a) While it's true that effective price controls always harm somebody, the net benefit enjoyed by society, in terms of total gains from trade, exceeds these individual losses. b) Dead weight loss is created and maintained by law; it is illegal for either consumers or producers to eliminate it. c) Despite the net societal loss from effective price controls, governments enact them when their political incentives do not align with economic incentives. d) An effective price control will always create either a shortage or a surplus.

a) While it's true that effective price controls always harm somebody, the net benefit enjoyed by society, in terms of total gains from trade, exceeds these individual losses.

When consumers face an effective price ceiling, (5.1 HW) a) there is a shortage, and the consumers who were willing to pay more out-compete the consumers who were willing to pay less. b) there is a shortage, and the consumers who were willing to pay less out-compete the consumers who were willing to pay more. c) there is neither a shortage nor a surplus, as an effective price ceiling contains the market-clearing price as a legal price at which to trade. d) there is neither a shortage nor a surplus, as an effective price ceiling does not contain the market-clearing price as a legal price at which to trade.

a) there is a shortage, and the consumers who were willing to pay more out-compete the consumers who were willing to pay less.

In an open market for a particular good X, ceteris paribus, if there are no transaction costs, (8.1 HW) a) there is no dead weight loss. b) the market cannot function properly. c) an intermediary is necessary to facilitate exchange. d) the prices faced by the buyers and sellers will not be equal.

a) there is no dead weight loss.

The division of labor refers to (6.1 HW) a) workers being assigned specific tasks. b) workers performing multiple tasks. c) creating jobs that all people can perform at the same level. d) separating men and women in the workforce.

a) workers being assigned specific tasks.

John raises bees to pollinate his orchard. A couple of bees which escaped ended up pollinating his neighbor's orchard, so (8.2 QUIZ) a) John's neighbor has received an external cost of John's bee-keeping. b) John's neighbor has received an external benefit of John's bee-keeping. c) John's neighbor has received an internal cost of John's bee-keeping. d) None of the above is correct.

b) John's neighbor has received an external benefit of John's bee-keeping.

Total revenue divided by quantity is (7.3 HW) a) marginal revenue. b) average revenue. c) price revenue. d) quantity revenue.

b) average revenue.

A person has a comparative advantage in an activity whenever she (6.1 QUIZ) a) can do the activity in less time than anyone else. b) can perform the activity at a lower opportunity cost than another person can. c) can do everything better than anyone else. d) has an absolute advantage in the activity.

b) can perform the activity at a lower opportunity cost than another person can.

Accounting profits are total revenues minus (7.3 HW) a) all relevant opportunity costs. b) explicit costs. c) explicit costs and all other relevant opportunity costs. d) explicit and implicit costs.

b) explicit costs.

What does the phrase "internalizing an external cost" mean? (8.2 HW) a) limiting the extent to which domestic firms can outsource production b) forcing producers to factor into their production costs the cost of the externalities created in the production of their output c) prohibiting economic activities that create externalities d) finding a way to address cross-border pollution

b) forcing producers to factor into their production costs the cost of the externalities created in the production of their output

For a firm in a perfectly competitive industry, the demand curve for its own product is (7.3 HW) a) upward sloping. b) horizontal. c) vertical. d) downward sloping.

b) horizontal.

For a wheat farmer in the middle of harvesting system, a fixed input would be (7.1 HW) a) trucks rented to haul the wheat. b) the land that had been planted. c) combines rented. d) workers hired.

b) the land that had been planted.

The typical shape of the long-run average cost curve is like (7.2 HW) a) the letter "C." b) the letter "U." c) a circle. d) an inverse of the letter "V."

b) the letter "U."

The long run is (7.2 HW) a) over one year. b) the time period in which all factors of production can be varied. c) over five years. d) when all factors of production are fixed.

b) the time period in which all factors of production can be varied.

If, as an entrepreneur, I am earning accounting profits of $50,000 per year and the opportunity cost of my time is $60,000, (7.3 HW) a) I am earning economic profits of $50,000. b) I am earning economic profits of $10,000. c) I should close my business. d) I am in a long-run equilibrium position.

c) I should close my business.

When negative externalities exist, a voluntary agreement can be negotiated. Which of the following statements is true? (8.2 HW) a) Voluntary agreements always leave the owner worse off. b) Voluntary agreements usually do not work since the owner has no incentive to negotiate. c) Transactions costs must be low relative to the expected benefits of reaching an agreement. d) Voluntary agreements are difficult to negotiate because they usually involve government intervention.

c) Transactions costs must be low relative to the expected benefits of reaching an agreement.

Explicit costs are (7.3 HW) a) the costs associated with the resources that the firm owns. b) all costs associated with the short run. c) actual expenditures that a firm must make. d) the opportunity costs of all resources used by the firm.

c) actual expenditures that a firm must make.

As a firm increases the level of output that it produces, short-run average fixed cost (7.2 HW) a) remains constant since fixed costs are constant. b) rises and then falls. c) decreases. d) decreases up to a particular level of output and then increases.

c) decreases. I THINK

For a hotdog vendor, the hotdog stand represents his (7.1 QUIZ) a) diseconomies of scale. b) variable input. c) fixed input. d) none of the above.

c) fixed input.

If marginal revenue is greater than marginal cost, the firm should (7.3 HW) a) raise marginal revenue. b) raise price. c) increase its rate of output. d) decrease its rate of output.

c) increase its rate of output.

Economic profit is always (7.3 QUIZ) a) equal to accounting profit. b) equally likely to be either greater or less than accounting profit. c) less than accounting profit. d) greater than accounting profit.

c) less than accounting profit.

The law of diminishing marginal product is responsible for (7.2 QUIZ) a) constant returns to scale. b) economies of scale. c) none of the long-run relationships. d) diseconomies of scale.

c) none of the long-run relationships.

Marginal revenue equals (7.3 QUIZ) a) total revenue divided by output. b) price times quantity, divided by average revenue. c) the change in total revenue from selling one more unit. d) total revenue divided by average revenue.

c) the change in total revenue from selling one more unit.

Import restrictions (6.3 QUIZ) a) cannot protect American jobs in any sector of the economy. b) hurt people who work in importing companies, but makes consumers better off. c) can protect United States jobs in the protected industry, which increases economic welfare of the country as a whole. d) can protect United States jobs in the protected industry but will also lead to job reductions in other export industries.

d) can protect United States jobs in the protected industry but will also lead to job reductions in other export industries.

Under the perfectly competitive market structure, the demand curve for an individual firm's products is (7.3 HW) a) relatively inelastic. b) perfectly inelastic. c) downward sloping. d) perfectly elastic.

d) perfectly elastic.

Using trade restrictions to protect special interests such as the U.S. auto industry (6.3 HW) a) is a very cost-efficient way of dealing with trade problems. b) is the best long-term solution for threatened U.S. jobs. c) results in lower prices for U.S. auto consumers. d) raises the prices that U.S. consumers must pay for autos.

d) raises the prices that U.S. consumers must pay for autos.

If there are transaction costs in the market for good X, should the market welcome intermediaries? (8.1 HW) a) Yes; both consumers and producers stand to benefit from an intermediary who can reduce transaction costs. b) It depends; if consumers bear a larger share of the transaction cost burden, producers may not want to reduce transaction costs. c) No; intermediaries are profit-seeking and will reduce others' wellbeing to earn revenue. d) It depends; if good X is an inferior good, then the transaction cost making the good more expensive from the buyer's perspective will reduce demand for good X, which sellers don't want. However, if good X is a normal good, then the transaction cost making the good more expensive from the buyer's perspective will increase demand for good X, which sellers do want.

a) Yes; both consumers and producers stand to benefit from an intermediary who can reduce transaction costs.

Your friend runs a small cupcake shop and has signed a 1-year $10,000 lease for a commercial space in downtown Champaign. It's 3 months into the lease, and she is concerned about high production costs. If she is concerned only with the short-run (these next 9 months of the lease), which of the following is guaranteed useless advice for her? (7.2 HW) a) You should sign a cheaper lease next year. b) You should hire less workers; the marginal product of some of your existing workers is very low. c) You should hire more workers; the marginal product of each additional worker is very high.

a) You should sign a cheaper lease next year.

A direct consequence of an effective price floor is (5.1 HW) a) a loss in total gains from trade. b) a reduction in quantity supplied. c) an increase in quantity exchanged. d) an increase in consumer surplus.

a) a loss in total gains from trade.

A tariff is (6.3 QUIZ) a) a tax on imported goods. b) a government-imposed restriction on the quantity of a specific good that can be imported into the country. c) a voluntary agreement to restrict exports. d) a subsidy on domestically produced goods.

a) a tax on imported goods.

In the recent years, prices of basic food commodities such as corn, rice, and wheat have increased sharply. A recent article in the Wall Street Journal states that Chinese authorities are concerned that escalating prices will cause inflation and be followed by civil unrest. (Source: Wall Street Journal, February 20, 2011) If the Chinese government sets a price ceiling below the equilibrium price, the result will be to (5.1 QUIZ) a) create deadweight loss. b) eliminate deadweight loss. c) increase total surplus. d) increase surplus and create deadweight loss.

a) create deadweight loss.

A tariff placed on a foreign good will (6.3 HW) a) increase the price of a competing domestic good. b) reduce the quantity sold of both the foreign and competing domestic good. c) reduce the price of a competing domestic good. d) increase the quantity sold of both the foreign and competing domestic good.

a) increase the price of a competing domestic good.

The Black Ash Steel Company's plant belches large quantities of noxious fumes and black ash into the air. Residents in the surrounding area have higher medical bills because of Black Ash's pollution. If the firm is forced to pay the social costs of its production, (8.2 QUIZ) a) it will produce less and charge more for its steel. b) the price it charges for its steel will decrease. c) its supply curve will shift to the right. d) the amount of steel it produces will increase in order to pay the additional costs.

a) it will produce less and charge more for its steel.

If there are no barriers to entry into an industry, (7.3 QUIZ) a) long-run economic profits must be zero. b) short-run economic profits must be zero. c) both short-run and long-run economic profits must be zero. d) short-run and long-run profits must still be positive.

a) long-run economic profits must be zero.

For a firm in a perfectly competitive industry (7.3 HW) a) marginal revenue and product price are equal at every level of output. b) more output can be sold only if the firm unilaterally lowers its product price. c) the demand curve is unitary elastic throughout. d) the price elasticity of demand is zero.

a) marginal revenue and product price are equal at every level of output.

In order for a firm to optimize its size, it needs to identify the quantity of production that (7.2 HW) a) minimizes long-run average total costs. b) minimizes short-run average total costs. c) maximizes marginal product. d) minimizes marginal cost. e) minimizes average fixed costs. f) maximizes total product.

a) minimizes long-run average total costs.

The implicit cost incurred by a firm to use its resources to produce its output is the firm's (7.3 HW) a) opportunity cost. b) accounting cost. c) total cost. d) explicit cost.

a) opportunity cost.

Your roommate was totally ready to purchase a $10 meal from Burrito King, but they do not want to go pick it up. They go on Grubhub, and find out that a $10 meal is going to cost +$4.99 for the delivery fee, +$3.25 for the Grubhub fee, and $2.55 for the tip. Somehow, paying $20.79 for a $10.00 meal is agreeable to them, but going to pick it up and pay $10.00 is not. This suggests that your roommate (8.1 HW) a) perceives a transaction cost greater in value than $10.79 if they leave their room to pick it up. b) is not behaving rationally. c) faces lower consumer surplus from ordering off Grubhub than if they went to pick it up.

a) perceives a transaction cost greater in value than $10.79 if they leave their room to pick it up.

Absolute advantage is (6.1 HW) a) producing a good using the fewest inputs. b) producing a good only when demand is high. c) producing a good that requires imported components. d) producing at a lower opportunity cost.

a) producing a good using the fewest inputs.

When MR < MC for a firm, the firm should (7.3 QUIZ) a) reduce its level of output. b) stay at the same level of output. c) increase output, unless P < AVC. d) stop producing.

a) reduce its level of output.

Pollution created by auto exhaust fumes is an example of a situation in which (8.2 QUIZ) a) social costs are greater than private costs. b) social costs are less than private costs. c) social costs are approaching the shutdown point. d) social costs are equal to private costs.

a) social costs are greater than private costs.

After some point successive equal increases in a variable factor of production, when added to a fixed amount of inputs, will result in smaller increases in output. This is known as (7.1 HW) a) the law of diminishing marginal returns. b) short run average cost. c) marginal physical product. d) the long run.

a) the law of diminishing marginal returns.