LSU econ final exam
Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will
increase, and producer surplus in the industry will increase
A decrease in income will cause a consumer's budget constraint to
shift inward, parallel to its initial position
If there is a shortage of farm laborers, we would expect
the wage of farm laborers to increase
Refer to Figure 21-12. If the consumer moves from bundle V to bundle X, the
total utility increases
A consumer maximizes utility when she consumes at a point where
the marginal utility per dollar spent on each good is the same
Without government intervention, public goods tend to be
underproduced and common resources tend to be overconsumed
Consumer surplus is equal to the
value to buyers - amount paid by buyers
Total surplus is equal to
value to buyers - cost to sellers
For which of the following goods is the income elasticity of demand likely lowest?
water
an example of a perfectly competitive market would be the market for
wheat
Refer to Figure 6-21. In the after-tax equilibrium, how much revenue does the government collect from the tax on this good?
$420
Refer to Table 7-3. If the price is $20, then consumer surplus in the market is
$45, and Quilana, Wilbur, and Ming-la purchase the good.
Refer to Figure 14-3. If the market price is $10, what is the firm's total revenue?
$50
Refer to Figure 14-3. The firm will earn zero economic profit if the market price is
$6
Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The deadweight loss of the tax is
$600
Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost during the year totaled $85,000. What is Tom's economic profit for his first year in business?
$0
Larry's Lunchcart is a small street vendor business. If Larry makes 15 pretzels in his first hour of business and incurs a total cost of $16.50, his average total cost per pretzel is
$1.10
Refer to Figure 6-22. Buyers pay how much of the tax per unit?
$1.50
Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are
$1.80 and 35 units, respectively
uppose the nation of Kenistonia has a tax system in which individuals pay a marginal tax of 10% on all income between $0 and $50,000, then a marginal tax of 25% on all income above $50,000. You live in Kenistonia, and last year you earned $90,000. It is now tax day--what is your total tax bill?
$15,000
Refer to Figure 21-1. If the price of a CD is $12, then the consumer's income amounts to
$240
Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The amount of deadweight loss resulting from this tax is
$25
Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on sellers is
$3
Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high
(i) and (ii) only
Sonia opened a yoga studio where she teaches classes and sells yoga clothing. Variable costs for Sonia's yoga studio include the cost of the (i) tank tops. (ii) wages paid to the other yoga instructors. (iii) lease on the studio space. (iv) insurance that the landlord requires Sonia to carry for the studio.
(i) and (ii) only
Hilda's Hair Hysteria earned $3,750 in total revenue last month when it sold 125 haircuts. This month it earned $3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Hilda's Hair Hysteria is
1.14
Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is
2.20
Refer to Figure 5-12. Using the midpoint method, the price elasticity of demand between point X and point Y is
2.5
Refer to Figure 6-28. Suppose a tax of $6 per unit is imposed on this market. What will be the new equilibrium quantity in this market?
20 units
Riva crafts and sells hard cider as a part-time job. She can bottle and sell four cases in a week. She is considering hiring her friend Atul to help her. Together, Riva and Atul can bottle and sell seven cases per week. What is Atul's marginal product?
3 cases
Refer to Figure 7-15. When the price rises from P1 to P2, what area represents the increase in producer surplus?
A+B
Which of the following events must cause equilibrium quantity to rise?
demand and supply both increase
Refer to Figure 7-4. When the price falls from P1 to P2, which area represents the increase in consumer surplus to new buyers entering the market
ABC
Taxes cause deadweight losses because taxes a. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. b. prevent buyers and sellers from realizing some of the gains from trade. c. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. d. All of the above are correct.
All of the above are correct
Which of the following statements best reflects a price-taking firm?
If the firm were to charge more than the going price, it would sell none of its goods
Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?
Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $4.50
In the short run firms will continue to operate, but in the long run firms will leave the market
Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that
Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm
Assume Leo buys coffee beans in a competitive market. It follows that
Leo cannot influence the price of coffee beans even if he buys a large quantity
The consumer's optimum is where
MUx/MUy = Px/Py
Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for convertible automobiles of an increase in the price of steel?
Point C to Point D
Which of the following could explain the change in the budget line from A to B?
a decrease in the price of Y
The Ogallala aquifer is a large underground pool of fresh water under several western states in the United States. Any farmer with land above the aquifer can at present pump water out of it. Which of the following statements about the aquifer is correct? a. The aquifer is a club good which should be left as it is. b. The aquifer is a private good which must be privately owned to be used efficiently. c. The aquifer is a public good which must be publicly owned to be used efficiently. d. The aquifer is a common resource which will be overused if no one owns it.
The aquifer is a common resource which will be overused if no one owns it
What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce steamed milk, which is used to make lattés, and scientists discovered that lattés cause heart attacks?
The equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous
Which of the following changes would not shift the supply curve for a good or service?
a change in the price of the good or service
Refer to Figure 4-15. Which of the following would cause the supply curve to shift from Supply A to Supply C in the market for sail boats?
a decrease in the price of fiberglass and sail cloth
Which of the following is NOT an example of a negative externality?
a decrease in your property value from neglecting your lawn and garden
When two goods are perfect complements, the indifference curve is
a right angle
Which of the following goods is not excludable and not rival in consumption?
a tornado siren
Which of the following industries is least likely to exhibit the characteristic of free entry?
satellite radio
Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is
above $6.30
Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?
an amount equal to the external cost
On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then
an apple costs twice as much as a light bulb
If Franco's Pizza Parlor knows that the marginal cost of the 500th pizza is $3.50 and that the average total cost of making 499 pizzas is $3.30, then
average total costs are rising at Q = 500
Suppose you make jewelry. If the price of gold falls, then we would expect you to
be willing and able to produce more jewelry than before at each possible price
If a shortage exists in a market, then we know that the actual price is
below the equilibrium price, and quantity demanded is greater than quantity supplied
Suppose that the demand for light bulbs is inelastic, and the supply of light bulbs is elastic. A tax of $2 per bulb levied on light bulbs will increase the price paid by buyers of light bulbs by
between $1 and $2
Consider the market for portable air conditioners in equilibrium. A summer of unseasonably cool weather would cause
both the equilibrium price and quantity to decrease
If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' incomes rise?
both the equilibrium price and quantity would decrease
Billie spends all of her income on soccer balls and jeans, and the price of a pair of jeans is three times the price of soccer balls. In order to maximize total utility, Billie should
buy both items until the marginal utility of a pair of jeans is three times the marginal utility of soccer balls
Which of the following is an illustration of the market for original paintings by deceased artist Vincent Van Gogh?
c. decreasing slope
he 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
Most studies indicate that alcohol and marijuana tend to be
complements
The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing
constant returns of scale
Deadweight loss is the
decline in total surplus that results from a tax
A tax imposed on the buyers of a good will lower the
effective price received by sellers and lower the equilibrium quantity
The demand for grape-flavored Hubba Bubba bubble gum is likely
elastic because there are many close substitutes for grape-flavored Hubba Bubba
Opponents of alcohol taxes often argue that liquor and marijuana are substitutes so that high liquor prices
encourage marijuana use, but the evidence does not support this argument
A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will
fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium
Recent forest fires in the western states are expected to cause the price of lumber to rise in the next six months. As a result, we can expect the supply of lumber to
fall now
Which of the following is correct? A tax burden a. falls more heavily on the side of the market that is more elastic. b. falls more heavily on the side of the market that is less elastic. c. falls more heavily on the side of the market that is closest to unit elastic. d. is distributed independently of the relative elasticities of supply and demand
falls more heavily on the side of the market that is less elastic
If textbooks and study guides are complements, then an increase in the price of textbooks will result in
fewer study guides being sold
Once tradable pollution permits have been allocated to firms,
firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits.
If the labor supply curve is nearly vertical, a tax on labor
has little impact on the amount of work that workers are willing to do
When there is a technological advance in the pork industry, consumer surplus in that market will
increase
If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would
increase by less than $5
Refer to figure 4-7, The movement from Da to Db in the market for potato chips could be caused by a(n) a. decrease in income, assuming that potato chips are a normal good
increase in the price of pretzels
Refer to Figure 4-23. In this market for watermelons, a severe drought occurs which affects the watermelon crop, the equilibrium price
increases and the equilibrium quantity decreases
Economies of scale occur when a firm's
long-run average total costs are decreasing as output increases.
Refer to Figure 6-2. The price ceiling
makes it necessary for sellers to ration the good
The minimum points of the average variable cost and average total cost curves occur where the
marginal cost curve intersects the curves
A perfectly competitive firm produces where
marginal cost equals price, while a monopolist produces where price exceeds marginal cost
Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company's financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger's
marginal revenue exceeds his marginal cost
The goal of the consumer is to
maximize utility
an example of a price floor is
minimum wage
Refer to Table 14-11. If the firm is producing 3 units of output, it should produce
more units of output because its marginal revenue is greater than its marginal cost
Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect
most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government
If Max experiences a decrease in his income, then we would expect Max's demand for
normal goods to decrease
If the demand for donuts is elastic, then a decrease in the price of donuts will
not change total revenue of donut sellers
If the government removes a $1 tax on sellers of gasoline and imposes the same $1 tax on buyers of gasoline, then the price paid by buyers will
not change, and the price received by sellers will not change
The U.S. military defends Jacob from foreign attackers. The fact that Jacob enjoys this protection does not detract from others Americans' enjoyment of it. For this reason, we say that national defense is
not rival in consumption
Most lighthouses are operated by the government because
of the free rider problem
A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain barrels provide an external benefit to the community through water conservation. What can the government do to equate the equilibrium quantity of rain barrels and the socially optimal quantity of rain barrels?
offer a subsidy on rain barrels that is equal to the per-unit externality
A good is excludable if
people can be prevented from using it
New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages, and automobile insurance becomes more expensive
price will fall
Markets do not ensure that the air we breathe is clean because
property rights are not well established for clean air
Refer to Figure 4-18. At a price of $15, there would be a
shortage of 400 units
Which of these types of costs can be ignored when an individual or a firm is making decisions?
sunk costs
Which of the following events could cause an increase in the supply of ceiling fans? a. There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes. b. There is an increase in the price of the motor that powers ceiling fans. c. The number of sellers of ceiling fans increases. d. All of the above are correct.
the number of sellers of ceiling fans increases
Refer to Figure 6-21. Suppose buyers, rather than sellers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in
the same amount of tax revenue for the government