Econ All Previous Test Corrections

Assume that the price elasticity of demand for good X is constant and equal to -0.5 and the price elasticity of demand for good Y is constant and equal to -2. Assume that goods X and Y have identical upward-sloping elastic supply curves. If a per-unit excise tax of the same amount is levied on good X and on good Y, which of the following would be true?

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For a firm where labor is the only variable input, which of the following happens when diminishing returns set in?

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assume that the goal of the government is to increase efficiency in the market. the cost of a government intervention that increases market output from Q1 to Q2 is $1.2 million. The intervention will definitely improve market efficiency if the area of

?

According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is

A, 5.00

The Lorenz curve represents the relationship between

A, cumulative percentage of households and the cumulative percentage of income

Private supply of public goods is most likely to result in

A, less than the efficient level of output, due to the free-rider problem

The government can attempt to correct the externality by setting a

A, per-unit tax equal to (P4-P1)?

Assume a perfectly competitive firm is currently producing 100 units of output. Its marginal cost is $6 and rising at that output quantity. Its average variable cost is $7 and its average fixed cost is $3. If the product's price is $6, which of the following will the firm do in the short run to maximize its profit?

A, shut down

Which of the following is more likely to occur when there are high barriers to entry in an industry?

A, the firms in the industry earn economic profits in the lon run

Which of the following is most likely to occur when a competitive market adjusts from one equilibrium to another?

B, An increase in demand will cause the equilibrium price, quantity, and producer surplus to increase

Which of the following is always true about a negative externality?

B, It results in a market output that is smaller than the socially optimal output

The diagram above shows the demand curve for a good. If the price increases from P1 to P2, and quantity consumed decreases from Q2 to Q1, consumer surplus decreases by the area

B, P1P2BC

The equilibrium price for a good with a vertical supply curve and a downward-sloping demand curve is $20. If a binding price floor is set, which of the following will occur?

B, The sum of consumer and producer surplus will decrease

Which of the following is true based on the graph above?

B, consumers of education could be subsidized in order to achieve the socially optimal quantity

Which of the following changes in the demand for and the supply of a good will necessarily result in an increase in both the equilibrium price and quantity of the good in a market?

B, demand increase, supply no change

Kyle spent all of his allocated budget on video games and comic books. To maximize his utility, Kyle should have purchased

B, fewer video games and more comic books

A country produces computers and rice. If resources are fully employed and there is a technological progress only in the production of rice, the opportunity costs of producing computers and rice will change in which of the following ways?

B, opportunity cost of computers increase and opportunity cost of rice decrease

The graph above shows the supply and demand curves for artichokes. The surgeon general announces that eating an artichoke a day dramatically reduces one's likelihood of developing cancer. Simultaneously an infestation of the artichoke weevil severely damages the crop. Which of the following will definitely occur as a result?

B, the price of artichokes will increase

The graph above shows a firm's LRATC. Which of the following statements is true as the firm increases its scale of production?

C, For output levels above Q1, the firm experiences diseconomies of scale

Suppose a firm's production process exhibits diseconomies of scale. How and why will costs change if the firm reduces its output?

C, Long-run average total cost will decrease because it becomes easier for the firm to manage its workforce

In the short run, assume diminishing marginal product of labor sets in with the hiring of the second worker. Which of the following will remain constant as a firm produces more output?

C, Total fixed cost

At market price $6, the profit-maximizing rate of output will result in

C, normal profits

Which of the following is true of both monopolistically competitive and perfectly competitive firms in long-run equilibrium?

C, price equals average total cost

if a severe drought destroys a significant portion of the peanut crop and peanut farmers' revenues increase, which of the following is true over the observed range of prices?

C, the demand for peanuts must be price inelastic

The absolute value of the price elasticity of demand for a good increases when

C?

In the short run, which of the following must be true for a perfectly competitive firm that is maximizing profits?

D, The firm will produce where MR=MC as long as P is greater than average variable cost

The table above shows the total benefit Tony gets from eating different quantities of apples. If apples cost $3 each, how many should he buy to maximize his consumer surplus?

D, 4

Which of the following will shift the supply curve for apples to the right

D, A decrease in the rental price for apple harvesting equipment

The table above shows the amount of labor required to produce a unit of corn and a unit of shoes in Brazil and Spain. If both countries have equal numbers of workers, what pattern of international trade between Brazil and Spain is most likely to emerge?

D, Brazil will export corn and import shoes

Dana and Robin produce smoothies and pizza. In one hour Dana can make 20 smoothies or 10 pizzas. In one hour Robin can make 18 smoothies or 6 pizzas. Which of the following statements is true?

D, Dana has a comparative advantage in making pizzas, and Robin has a comparative advantage in making smoothies

Assume that the short-run marginal cost curve initially falls, and it then rises as quantity of output increases. Which of the following must be true?

D, Initially the marginal product of labor increases but eventually marginal product of labor decreases

At the current output level, a firm finds that it has the potential to increase its profit by expanding output. Which of the following must hold at the current output for this firm?

D, MR>MC

Carlos has a van with 20 seats and charges $10 per person per ride to the airport from downtown. Carlos' cost of the trip is $140 for any number of passengers. On one trip, Carlos has 19 seats filled when a person offers him $5 for the last seat. Should Carlos accept the offer?

D, Yes, since the marginal benefit exceeds the marginal cost.

Economies of scale can be illustrated by

D, a decreasing long-run average total cost curve as a firm produces more output

Given the demand curve above, if the price decreases from $8 to $4 per unit, total consumer surplus will

D, increase by $18