ECON Practice Exam

According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively

larger and larger quantities of the variable factors of production.

For people with very low incomes, the earned income tax credit operates like a(n)`

wage subsidy.

Imagine that you are an entrepreneur making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 1,000 t-shirts, your average total cost is

$10.30.

In an open economy, the price of a TV will be

$125.

Paper Pushers Incorporated hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company's hourly output varies with the number of workers hired, as shown in the accompanying table. If the market price of each page is $5, the first worker's VMPL is ______ per hour, and the third worker's VMPL is ______ per hour.

$200; $150

Refer to the accompanying figure. If a price ceiling were imposed at $4, total economic surplus would be ______, which is ______ less than when the market is unregulated market.

$24; $8

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 100 pizzas a day, its fixed cost is ______ and its total cost is ______.

$500; $1,350

If an individual consumer is willing to pay $18 for one unit of a good but is able to purchase it for $12, then his or her consumer surplus from the purchase of that unit would be

$6.

The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year. Selena's opportunity cost of producing one pound of beef is _____.

1/25 of a computer

Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine. The socially optimal quantity of the vaccine is ______ doses per day.

100

Which of the following is not an example of the hurdle method of price discrimination?

A lower price on strawberries when they are in season.

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Acme Manufacturing: TC = 100 + 3Q. Generic Industries: TC = 500 + 3Q. Which of the following statements is true?

Acme and Generic have the same marginal cost.

Denise sells lemonade in front of her house in the summer. Several other kids in Denise's neighborhood also run lemonade stands in the summer. Suppose that the first week of summer, Denise charged 25 cents for an 8-ounce cup of lemonade, her next-door neighbor Jason charged 50 cents for an 8-ounce cup of lemonade, and Gina across the street charged 15 cents for an 8-ounce cup of lemonade. Assuming the market for lemonade is perfectly competitive, what is most likely to happen?

Eventually prices will equalize across all three lemonade stands.

A patch of edible mushrooms growing wild in a national forest is a ______ good.

commons

A society could achieve a higher level of production if

each person specializes according to their comparative advantage.

A price setter is a firm that

has some degree of control over its price.

A pure public good is one that is

highly nonrival and highly nonexcludable.

If the production of oranges generates an external benefit, then we would expect the market equilibrium quantity of oranges to be

less than the socially optimal quantity.

A proportional tax results in

the same percentage of income going to taxes for all taxpayers.

Refer to the accompanying figure. If a price ceiling were imposed at point G, then producer surplus would be represented by the area ______.

DGF

Refer to the accompanying figure. If this market is unregulated, the economic surplus received by consumers is

$16.

Refer to the accompanying figure. If a price ceiling were imposed at $4, consumer surplus would be

$20.

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. Suppose a permit system has been adopted and each firm has already purchased one permit. Industrio would be willing to pay up to ______ for the right to emit a second ton of smoke, and Capitalista would be willing to pay up to ______ for the right to emit a second ton of smoke.

$200; $110

Assume that this graph illustrates a perfectly competitive labor market. Equilibrium in this labor market is at a wage of ______ per hour and an employment level of ______ person-hours per day.

$30; 150

For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. What is this seller's reservation price for the 250th unit?

$4

Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. If Leo only values income and not how the income was acquired, then he must earn ______ to be as well off as when he earns nothing and receives benefits.

$450

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the accompanying table. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. The villagers will buy a year-old goat if the goat can be sold for a price of at least _____ when it is 2 years old. (ch.9)

$55

Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Suppose the firms are both currently using process A. If the government imposes a tax of $110 per ton of smoke emitted, a total of ______ tons of smoke will be emitted each day, and the total cost to society of this policy will be ______ per day.

16; $250

The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident's marginal benefit of the swimming pool is shown in the accompanying table. It takes a 4/5 majority to pass any tax measure, and all residents must vote. If Ava proposes that the city build the pool and finance it with a $200 tax on each resident, then ______ residents will vote in favor of the proposal and ______ will vote against, so the proposal will ______.

3; 2; fail

Suppose the market consists of three individuals: Citizen A, Citizen B, and Citizen C. If the good shown on the graphs is a public good, and the marginal cost of providing each unit is constant and equal to $5, then what is the optimal quantity of the public good?

40 units

Which of the following is not a reason why unionized firms can successfully compete with nonunionized firms?

Unionized firms are legally protected from price competition with nonunionized firms.

Assume that all firms in this industry have identical cost curves and that the market is perfectly competitive. If the market supply curve is given by S3, then what will happen to the market supply curve in the long run?

It will shift to S2.

If the United States consumption possibilities are greater than its production possibilities, then the United States must have

an open economy.

A decrease in demand for a firm's output results in a(n)

decrease in labor demand.

In an open economy, the country represented in the accompanying graph will ________ million bushels of corn.

export 600

Refer to the accompanying figure. If negotiation is impractical, the socially optimal level of production can be achieved by

imposing a tax on paper equal to the external cost.

When Brady is driving, he throws his cigarette butts out the window, reasoning that other people will clean up the litter on the side of the road. By throwing his cigarette butts out the window, Brady is

imposing an external cost on others.

If the domestic consumers of a good benefit from free trade, it suggests that the country

is a net importer of that good.

Paper Pushers Incorporated hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company's hourly output varies with the number of workers hired, as shown in the accompanying table. The VMPL of the sixth worker is ______ than the VMPL of the fourth worker because ______.

less; of the law of diminishing returns

Suppose 30 employees can produce 50 units of output per day. Assuming the presence of diminishing marginal returns, producing 100 units of output per day would require

more than 30 additional employees.

Relative to a single price monopolist, a price discriminating monopolist generates

more total surplus.

Suppose a monopolist produces two different products. If the marginal cost of producing one is lower than the marginal cost of producing the other, and the monopolist charges a different price for the two goods, then the monopolist is

not price discriminating.

An economy that trades with the rest of the world is a(n)

open economy.

The reason economists consider monopoly to be socially undesirable is that monopolists

produce less than the socially optimal level of output.

Assume that the production technology required to produce goods X and Y is very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will

shift into producing good Y.

Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000th unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should

shut down.

Hannah, Lucas, and Eli are the only three residents of the village of Fantasma. They are considering whether to construct a hiking trail in the mountains surrounding the village. Because congestion on the trail is unlikely, it would be nonrival. Hannah values the trail at $300 per month, Lucas values the trail at $100 per month, and Eli values the trail at $80 per month. The cost of building and maintaining the trail is $420 per month. Given this information, it is

socially optimal to build the trail.

Refer to the accompanying figure. The socially optimal quantity in this market could be achieved by imposing a ______ equal to the vertical distance ______.

subsidy; LM

The government should only provide a pure public good if ______ and ______.

the good's benefits exceed its costs; there is no less costly way to provide it

An example of an implicit cost is

the value of a spare bedroom turned into a home office.