Econ 111 Final Exam

After the imposition of a per-unit tax on production, consumers pay $5.00 per unit and producers receive $4.30 per unit. What is the value of the per unit tax? a.) $5 b.) $4.30 c.) $0.30 d.) $0.70

$5-$4.30= D.) $0.70

Steve decides not to rent out his second home since he is not allowed to set the rate above $1000$1000 per month even though he knows he could find renters willing to pay much more. Select the term that best fits the scenario. black market price floor quota price ceiling license

Price Ceiling

Total Revenue

Price x Quantity

The quantity demanded of a good or service is the amount that: a.) a consumer needs to consume during a given time period b.) consumers are willing and able to buy at a given price c.) firms are willing to sell during a given time period at a given price d.) a consumer would like to buy but might not

b.) consumers are willing and able to buy at a given price

Price floors would create all of the following effects EXCEPT: a.) misallocation of resources b.) wasteful decreases in product quality c.) surpluses d.) deadweight loss

b.) wasteful decreases in product quality

Club goods are likely to be: a.) non-rival and non-excludable b;) under provided by the market c.) rival and non-exclusive d.) over provided by the market

b;) under provided by the market

Average Cost

the total cost divided by the quantity produced AC=TC/Q

Total Variable Cost

total cost - total fixed cost TC - TFC

What is the profit formula?

total revenue - total cost or Q(P-AC)

Average Variable Cost (AVC)

total variable costs divided by quantity of output (TVC/Q)

Rent controls are a typical example of a price ceiling. Please select all likely consequences of rent controls when the price ceiling is binding. There is more than one correct answer. 1.)surplus of affordable housing 2.)shortage of affordable housing 3.)reductions in apartment quality 4.) inefficient allocation of apartments

2.)shortage of affordable housing 3.)reductions in apartment quality 4.) inefficient allocation of apartments

If hipsters decide that Pabst Blue Ribbon has become cliché and they seek out a more iconic beverage, what will happen in the market for PBR? A.) Demand will decrease, quantity supplied will decrease, and price will decrease. B.) Supply will decrease, quantity demanded will decrease, and price will decrease. C.) Demand will decrease, quantity demanded will decrease, and price will increase. D.) Demand will decrease, quantity supplied will increase and price will decrease.

A.) Demand will decrease, quantity supplied will decrease, and price will decrease.

The difference between the market price and the minimum price at which a seller is willing to sell a certain quantity of a good is: A.) producer surplus B.) consumer surplus C.) consumer shortage D.) producer shortage

A.) producer surplus

Economists believe that socially good outcomes will arise whenever: A.) self-interest is pursued and it aligns with social interest B.) either self-interest or social interest are pursued C.) self-interest is pursued D.) self-interest is pursued and it does not align with social interest

A.) self-interest is pursued and it aligns with social interest

If the income elasticity of demand of a good is positive, we can con conclude that the good is: A.) an inferior good B.) a normal good c.) a substitute D.) a complement

B.) a normal good

What you give up to obtain an item is called your A.) explicit cost B.) Opportunity Cost C.) True cost D.) Direct Cost

B.) opportunity cost

The supply curve: A.) is the amount that buyers are willing and able to buy at a particular price B.) shows how much sellers are willing and able to sell at different prices C.) is the amount that sellers are willing and able to sell at a particular price D.) shows how much buyers are willing and able to buy at different prices

B.) shows how much sellers are willing and able to sell at different prices

The elasticity of demand for a good is -0.75. A 4% increase in price will cause a: A.) 0.19% decrease in quantity demanded B.) 5.33% increase in quantity demanded C.) 5.33% decrease in quantity demanded D.) 3% decrease in quantity demanded

D.) 3% decrease in quantity demanded

The table contains the demand and supply schedule for apartments in a city. Suppose the city council feels that the equilibrium rent is too high and imposes a price ceiling of $750/month. Rent/Month Quantity Demanded Quantity Supplied $1750. 300. 4800 $1500. 600. 2400 $1250. 1200. 1200 $1000. 2400 600 $750. 4800 300 The price ceiling results in a.. surplus shortage The city now has a shortage/surplus of how many apartments?

Shortage 4500

Total Fixed Costs (TFC)

The total costs (TC) when Q=0

Marginal Cost (MC)

Total Cost(TC)-Previous Total Cost(PTC)

Marginal Revenue (MR)

Total Revenue(TR)-Previous Total Revenue(PTR)

The price of Good B increases by 4%, causing the quantity demanded of Good A to decrease by 6%. The cross-price elasticity of demand is,_______, and the goods are _____? a.) -1.5; complements b.) 0.67; complements c.) -0.67; substitutes d.) 1.5; substitutes

a.) -1.5; complements solve by: XPE = Good A/Good B

Which of the following best illustrates the concept of diminishing marginal utility? a.) Gladys is hungry and the first piece of pizza she eats tastes wonderful! The 5th piece of pizza she eats makes her sick. b.) Thomas likes tomatoes more than Janice, and thus gets more utility from tomatoes than Janice c.) Sarah likes hamburgers, but the price she is willing to pay for them is low compared with another good she also likes d.) High Fly is a new low-cost airline. Initially, it is very expensive for a High Fly to offer flights to customers because of the high start-up costs, but after covering fixed costs, the additional cost of adding one more consumer falls significantly.

a.) Gladys is hungry and the first piece of pizza she eats tastes wonderful! The 5th piece of pizza she eats makes her sick.

Suppose the city council in a large city decides to pass a law which forces landlords to charge a maximum rent of $750/month for a one-bedroom apartment. Prior to the rent control, the average rent for a one-bedroom apartment was $1,750/month. Which is likely to occur as a result of the price ceiling? a.) Landlords will begin decreasing the quality of one-bedroom apartments by not making repairs or paying for upkeep. b.) Landlords will supply more apartments to the market than they did before the price ceiling. c.) The rental market will become more efficient. d.) Some landlords and renters will agree on a price of less than $750/month and not report it to the government. The answer above is an example of... a.) inefficiently low quality. b.) quantity controls. c.) a black market. d.) a quota rent.

a.) Landlords will begin decreasing the quality of one-bedroom apartments by not making repairs or paying for upkeep. a.) inefficiently low quality.

If demand is elastic, a price _________ causes _________ in total revenue. a.) decrease; an increase b.) increase; no change c.) increase; an increase d.) decrease; a decrease

a.) decrease; an increase

Determine whether each statement is true or false. a. Price ceilings result in resources being allocated to activities with the highest possible value. b. Price ceilings result in a reduction in mutually beneficial exchanges. c. Though they may face higher prices, consumers usually see an increase in product quality when price ceilings are imposed. d. A problem with price ceilings is that they lead to surpluses. e. When price ceilings are imposed, consumers pay lower explicit prices but often face higher costs in terms of waiting in line for goods and services.

a.) false b.) true c.) false d.) false e.) true

In the case of a binding price floor, the price paid in the market will be: a.) greater than the free market equilibrium price b.) unable to be compared with the free market equilibrium price c.) equal to the free market equilibrium price d.) less than the free market equilibrium price

a.) greater than the free market equilibrium price

Under monopoly, the portion of the outgoing consumer surplus that is not transferred to the monopoly firm or still considered consumer surplus is: a.) known as deadweight loss b.) available to third parties who benefits from sales of the monopolist's output. c.) transferred to the government d.) the key to making the moral case against monopoly

a.) known as deadweight loss

Because there are external benefits from higher education: a.) private markets will undersupply college classes b.) thee government should impose a tax on college students c.) private markets will oversupply college classes d.) government intervention cannot improve the market for college classes

a.) private markets will undersupply college classes

A price ceiling creates a______ when it is set _______ the equilibrium price. a.) shortage; below b.) shortage; above c.) surplus; above d.) surplus; below

a.) shortage; below

An increase in demand and a decrease in supply occur in a market. What happens to the equilibrium? a.) the equilibrium price increases; the change in the equilibrium quantity is uncertain b.) The equilibrium price increases, the equilibrium quantity decreases c.) The equilibrium price decreases, the equilibrium quantity increases d.) The equilibrium price decreases, the change in the equilibrium quantity is uncertain

a.) the equilibrium price increases; the change in the equilibrium quantity is uncertain

The Coase theorem posits externality problems can be solved without government intervention: a.) when transaction costs are low and property rights are clearly defined b.) when trading in tradable allowances occurs c.) if markets can reach the efficient quantity and if transaction costs exceed the deadweight loss caused in the market d.) only rarely; in general, markets cannot maximize social surplus

a.) when transaction costs are low and property rights are clearly defined

A free rider is a person who a. will only purchase a product on sale. b. receives the benefit of a good but avoids paying for it. c. can produce a good at no cost. d. avoids paying taxes by using tax code loopholes

b. receives the benefit of a good but avoids paying for it.

In a constant-cost industry, the market price and average cost are equal to $23.00. Therefore, which of the following is correct? a.) An increase in demand will cause the short-run price to rise above $23 but, in the long run, the price will return to $23 b.) All answers are correct c.) A decrease in demand will cause market price to fall below average cost and thus firms will earn negative profits d.) An increase in demand will cause profits to rise and firms to enter the industry until profits return to normal

b.) All answers are correct

Which of the following statements is true? a.) A monopolist is guaranteed monopoly profits b.) If the monopolist's marginal revenue is greater than the marginal cost, the monopolist can increase profit by selling more units at a lower price per unit. c.) If the monopolist's marginal revenue is greater than the marginal cost, the monopolist can increase profit by selling fewer units at a higher price per unit. d.) When a monopolist produces where MR=MC it always earns a positive economic profit

b.) If the monopolist's marginal revenue is greater than the marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.

In a graph showing a straight - line market demand curve the marginal revenue curve is: a.) the same straight-line as the demand curve b.) a straight-line that begins at the same point as the demand curve on the y-axis but with twice the slope c.) there is not enough information to complete the statement d.) a straight-line that begins at the origin but with twice the slope of the demand curve

b.) a straight-line that begins at the same point as the demand curve on the y-axis but with twice the slope

Goods that are rival include both: a.) public goods and private goods b.) common resources and private goods c.) common resources and club goods d.) public goods and common resources

b.) common resources and private goods

Which of the following is always true for monopolies? a.) TR > TC b.) MR > D c.) MR < P d.) P > AC

c.) MR < P

The marginal cost curve intersects the average cost curve... a.) on the vertical portions b.) on the upward-sloping portion c.) at its minimum point d.) on the downward-sloping portion

c.) at its minimum point

Profit positive whenever price is greater than: a.) total cost b.) fixed cost c.) average cost d.) marginal cost

c.) average cost

Which of the following is NOT a source of monopoly power? a.) laws preventing entry of competitors b.) economies of scale c.) inelastic demand for the product d.) innovation

c.) inelastic demand for the product

A price ceiling is a(n): a.) illegally established maximum price that can be charged for a good. b.) illegally established minimum price that can be charged for a good. c.) legally established maximum price that can be charged for a good d.) legally established minimum price that can be charged for a good

c.) legally established maximum price that can be charged for a good

If in an attempt to correct an externality the government sets a Pigouvian tax too high the equilibrium quantity will be: a.) equal to the efficient quantity b.) higher than the efficient quality c.) lower than the efficient quantity d.) zero

c.) lower than the efficient quantity

The tragedy of the commons refers to the: a.) overuse of a non-rival and non-excludable good b.) underproduction of public goods in economic markets c.) overuse of a rival but non-excludable good d.) underproduction of a common good

c.) overuse of a rival but non-excludable good

Which of the following variables do NOT shift the demand curve? a.) price of complement goods b.) income c.) price of the good itself d.) population

c.) price of the good itself

Gains from trade are maximized in a competitive market when: a.) quantity demanded exceeds the quantity supplied b.) quantity supplied exceeds the quantity demanded c.) quantity supplied equals quantity demanded d.) quantity supplied equals zero

c.) quantity supplied equals quantity demanded

In consumer choice, one maximizes _____ subject to a budget constraint. a.) quantity b.) utility, price savings, and quantity c.) utility d.) price savings

c.) utility

Total profit for a given quantity of output can be calculated as: a.) Marginal Revenue - Marginal Cost b.) Total Revenue - Marginal Revenue c.) Marginal Profit + Marginal Revenue d.) Total Revenue - Total Costs

d.) Total Revenue - Total Costs

Goods that are nonexcludable include both: a.) natural monopolies and common resources b.) private and public goods c.) only public goods, since no other goods are nonexcludable d.) common resources and public goods

d.) common resources and public goods

What is the formula for consumer surplus?

maximum willingness to pay - actual price

Read the following statements and decide if it is more or less In the long run, the shortages of available housing resulting from rent controls are (more or less) pronounced than (as) they are in the short run. One explanation for this is that in the long run, firms can makes changes to the amount of housing they provide (more or less) easily than (as) they can in the short run. Because of differences in firms' ability to make changes to quantity supplied, the long-run supply curve for housing is modeled as a line that is (more or less) steep than (as) the short-run supply curve. Therefore, supply is (more or less) elastic in the short run than (as) in the long run.

more more less less

Garret is an undergraduate looking for a job to pay for college. As Garret seeks employment, he is glad to know that he will be paid at least $7.25 per hour. Select the term that best fits the scenario. price floor license black market quota price ceiling

price floor