Midterm 2 Econ

The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: • a private cost of $3.10; • a social cost of $3.55; • a value to consumers of $3.70. Refer to Scenario 10-1. Suppose the equilibrium quantity of gasoline is 1,150 gallons; that is, QMARKET = 1,150. Then the equilibrium price of a gallon could be -$2.80 -$3.00 -$3.30 -$3.80

$3.30

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: Refer to Figure 14-2. If the market price is $10, what is the firm's short-run economic profit? $9 $15 $30 $50

$50

Refer to Table 15-1. At what price will the monopolist maximize his profit?

18$

Refer to Figure 15-2. A profit-maximizing monopoly's total revenue is equal to

P5 × Q3.

Table 12-8 The dollar amounts in the last three columns are the taxes owed under three different tax systems. Refer to Table 12-8. Which of the three tax systems is proportional?

Tax System A

Which of the following statements is true?

When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price

A firm cannot price discriminate if

it operates in a competitive market

Which of the following is a DISADVANTAGE of government provision of public good? -The government lacks information about the value people place on the good. -The government does not provide enough of any public good. -The private sector can provide all public goods at a lower cost. -There are no disadvantages of government provision of a public good.

the government lacks information about the value people place on the good

When marginal cost is less than average total cost -marginal cost must be falling. -average variable cost must be falling. -average total cost is falling. -average total cost is rising.

average total cost is falling

Part of the administrative burden of a tax is -the money people pay to the government in taxes. -reducing the size of the market because of the tax. -the hassle and expense of filling out tax forms that is imposed on taxpayers who comply with the tax. -the cost of administering programs that use tax revenue.

the hassle of filling out tax forms that is imposed on taxpayers who comply with the tax

The short-run supply curve for a firm in a perfectly competitive market is horizontal. likely to slope downward. determined by forces external to the firm. the portion of its marginal cost curve that lies above its average variable cost.

the portion of its marginal cost curve that lies above its average variable cost.

Refer to Figure 9-2. Total surplus with trade exceeds total surplus without trade by -$640. -$1,280. -$2,560. -$3,840.

$1280

Refer to table 12-5. If Miss Kay has 80,000 in taxable income, then if rounded to nearest dollar, her tax liability is -$11,581. -$16,181. -$20,000. -$24,881.

$16,181

Suppose a firm in a competitive market increases its output by 20 percent. As a result, the price of its output is likely to -decline by 20 percent. -remain unchanged. -increase by less than 20 percent. -decline by more than 20 percent.

-Remain Unchanged

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced? -They are equal. -The after-tax equilibrium quantity is greater than the socially optimal quantity. -The after-tax equilibrium quantity is less than the socially optimal quantity. -There is not enough information to answer the question.

-They are equal

Refer to Figure 9-1. In the absence of trade, total surplus in the Guatemalan coffee market amounts to -750. -1,100. -1,514. -1,650.

1650

Refer to Figure 15-5. Based upon the information shown, how many units will Bearclaws produce to maximize profits?

70

Refer to Figure 14-3. When market price is P2, a profit-maximizing firm's losses can be represented by the area -(P4 − P2) × Q2. -(P2 − P1) × (Q2 − Q1). -At a market price of P2, the firm earns profits, not losses. -At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses.

At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses.

The U.S. Military defends Jacob from foreign conflict. The fact that Jacob enjoys the protection does not detract from other Americans' enjoyment of it. For this reason, we say that national defense is

-not rival in consumption

Refer to figure 9-4. Consumer surplus in this market after trade is -A -A+B -A+B+D -C

A

Which of the following statements is Not true of Both pollution permits and corrective taxes? -Both policies internalize the externality of pollution. -Both policies require firms to pay for their pollution. -Both policies lead to the establishment of an equilibrium price of pollution. -Both policies increase the amount of pollution compared to the market equilibrium.

Both policies internalize the externality of pollution.

If all external costs were internalized, then the market's output would be -Q1 -Q2 -Q3 -Q4

Q2

Monopoly firms face

downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve

Refer to Figure 15-1. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure?

Natural monopoly

Refer to Figure 15-6. What is the area of deadweight loss?

The triangle 1/2[(X − Z) × (K − J)]

Import quotas and tariffs produce some common results. Which of the following is NOT one of these common results? -Total surplus is the domestic country always falls. -Producer surplus in the domestic country always increases. -The domestic country always experiences a deadweight loss. -Equal revenue is always raised for the domestic government.

Total surplus is the domestic country always fall.

On hot summer days, electricity-generating capacity is sometimes stretched to the limit. At these times, electric companies may ask people to voluntarily cut back on their use of electricity. On these days, electricity is -excludable, but nonrival in consumption. -not excludable, but rival in consumption. -excludable and rival in consumption. -not excludable and nonrival in consumption.

excludable and rival in consumption

Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business? -$170 -$140 -$30 -$300

$170

Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from her first year in her own practice is -$-39000 -$124000 -$163000 -$184000

$184000

This graph represents the tobacco industry. The socially optimal price and quantity are -$3.00 and 30 units, respectively. -$2.80 and 24 units, respectively. -$2.07 and 38 units, respectively. -$1.50 and 50 units, respectively.

$2.80 and 24 units, respectively (I think).

Suppose Ron is willing to pay $200 to see a professional basketball game and Felix is willing to pay $150. Assume the normal price of a ticket is $125. The local government decides to impose a $35/ticket surcharge to raise revenue, causing the ticket price to rise to $160.The resulting deadweight loss is -$75 -$25 -$35 -$150

$25

Zaid's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $65 for 10,000 tents. At that level of output, the firm's average total costs equal -$65 -$75 -$85 -$95

$95

Leonard, Sheldon, Raj, and Penny each like to attend comic-book conventions. The price of a ticket to a convention is $50. Leonard values a ticket at $70, Sheldon at $65, Raj at $60, and Penny at $55. Suppose that if the government taxes tickets at $5 each, the price will rise to $55. A consequence of the tax is that consumer surplus shrinks by -$50 and tax revenues increase by $20, so there is a deadweight loss of $30. -$30 and tax revenues increase by $20, so there is a deadweight loss of $10. -$20 and tax revenues increase by $20, so there is no deadweight loss. -$50 and tax revenues increase by $20, so there is no deadweight loss.

-$20 and tax revenues increase by $20, so there is no deadweight loss

The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker dying from exposure to a hazardous chemical used in the production of fertilizer is 0.008. The cost of imposing a regulation that would ban the chemical is $32 million. If the value of a human life is equal to $10 million, how many people must the policy affect in order for the benefits to exceed the costs? -256 -401 -3201 -4001

-401

A toll on a congested road is in essence -an interstate highway subsidy. -a hidden tax. -a gasoline tax. -a corrective tax.

-A corrective tax

You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $12 value on reading a book. -You should stay and watch the remainder of the show. -You should go home and watch TV. -You should go home and read a book. -You should go home and either watch TV or read a book.

-You should go home and read a book.

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output -is less than 1,000 pounds. -is still 1,000 pounds. -is more than 1,000 pounds. -becomes zero.

-is still 1,000 pounds.

Refer to Figure 10-6. If 325 units of plastics are produced and consumed, then the -social optimum has been reached -market equilibrium has been reached. -government must have imposed a corrective tax to guide the market to this outcome. -government must have offered a corrective subsidy to guide the market to this outcome.

-market equilibrium has been reached

When profit-maximizing firms in competitive markets are earning profits, -market demand must exceed market supply at the market equilibrium price. -market supply must exceed market demand at the market equilibrium price. -new firms will enter the market. -the most inefficient firms will be encouraged to leave the market.

-new firms will enter the market.

Refer to Table 13-5. Assume the Wooden Chair Factory currently employs 5 workers. What is the marginal product of labor when the factory adds a 6th worker? 5 chairs per hour 15 chairs per hour 25 chairs per hour 70 chairs per hour

15 chairs per hour

Monopolies are socially inefficient because the price they charge is

above marginal cost.

Refer to Figure 14-7. Assume that the market starts in equilibrium at point W in graph (b). An increase in demand from D0 to D1 will result in -a new market equilibrium at point X. -an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. -rising prices and falling profits for existing firms in the market. -falling prices and falling profits for existing firms in the market.

an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z.

If we want to gauge the sacrifice me by a taxpayer, we should use the -average tax rate. -marginal tax rate. -lump-sum tax rate. -sales tax rate.

average-tax rate

Market Failure associated with the free-rider problem is a result of -a problem associated with pollution. -benefits that accrue to those who don't pay. -benefits that accrue to providers of the product. -market power.

benefits that accrue to those who don't pay.

If a monopolist is able to perfectly price discriminate

consumer surplus and deadweight losses are transformed into monopoly profits

Tom produces commemorative t-shirts in a competitive market. If Tom decides to decrease his output, this will -increase his revenue, since the output decrease leads to a higher market price. -increase his revenue, since Tom's competitors will also decrease their output, so that price rises to offset the drop in Tom's output. -decrease his revenue, since his output has decreased and the price remains the same. -decrease his revenue, since the price falls as competitors increase their output to make up for his decrease in output.

decrease his revenue, since his output has decreased and the price remains the same.

Refer to Figure 9-1. With trade, Guatemala will -export 22 units of coffee -export 10 units of coffee. -import 30 units of coffee. -import 12 units of coffee.

export 22 units of coffee

Medicare is the -government's health plan for the poor. -government's health plan for the elderly. -another name for Social Security. -government health plan for unpriveleged children under 18 years old.

government's health plan for the elderly

Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels

Refer to Figure 9-3. Before the tariff is imposed, this country -imports 200 roses. -imports 400 roses. -exports 200 roses. -exports 400 roses.

imports 400 roses

Refer to Table 13-9. For the firm whose production function and costs are specified in the table, its total-cost curve is -constant. -increasing at a decreasing rate. -increasing at an increasing rate. -unknown because there is no relationship between a firm's production function and its total-cost curve.

increasing at an increasing rate

If marginal cost is rising, -average variable cost must be falling. -average fixed cost must be rising. -marginal product must be falling. -marginal product must be rising

marginal product must be falling

When a good is rival in consumption, -One person's use of the good diminishes another person's ability to use it -people can be prevented from using the good. -an unlimited number of people can use the good at the same time. -everyone will be excluded from obtaining the good.

one person's use of the good diminishes another person's ability to use it

A good is excludable if -one person's use of the good diminishes another person's enjoyment of it. -the government can regulate its availability. -it is not a normal good. -people can be prevented from using it.

people can be prevented from using it

When the nation of Duxembourg allows trade and becomes an importer of software, -residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg rises. -residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg falls. -residents of Duxembourg who produce software become better off; residents of Duxembourg who buy software become worse off; and the economic well-being of Duxembourg rises. -residents of Duxembourg who produce software become better off; residents of Duxembourg who buy software become worse off; and the economic well-being of Duxembourg falls.

residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg rises.

Refer to Table 11-1. Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the cost of building the park equally. If the residents vote to determine the size of park to build, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the largest park size for which the majority of residents would vote "yes?" -0 acres -1 acres -2 acres -3 acres

3 acres

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is -8 units of output. -10 units of output. -122 units of output. -132 units of output.

8 units

Which of the following goods is rival and excludable? -An uncongested toll road -An uncongested nontoll road -A congested nontoll road -A congested toll road

A congested toll road

Refer to Figure 14-5. The figure above is for a firm operating in a competitive industry. If there were four identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve? A only A and C only B only B and D only

A only

Refer to Figure 9-5. Consumer surplus in this market after trade is -A -C+B -A+B+D -B+C+D

A+B+D

Refer to Figure 13-6. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory? -ATCA -ATCB -ATCD -ATCC

ATCA

Refer to Figure 13-3. Why doesn't the total cost curve begin at the origin (the point 0,0)? -Because variable costs are positive when output is zero -Because fixed costs are positive when output is zero -Because the firm is producing at the efficient scale -Because the firm is maximizing profits

Because fixed costs are positive when output is zero

Which of the following statements is NOT correct? -Government policies may improve the market's allocation of resources when negative externalities are present. -Government policies may improve the market's allocation of resources when positive externalities are present. -A positive externality is an example of a market failure. -Without government intervention, the market will tend to undersupply products that produce negative externalities.

Government policies may improve the market's allocation of resources when positive externalities are present.

Denmark is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Denmark imposes a $5 tariff on chips. Which of the following outcomes is possible? -More Danish-produced chips are sold in Denmark. -More foreign-produced chips are sold in Denmark. -Danish consumers of chips become better off. -Total surplus in the Danish chip market increases

More Danish-produced chips are sold in Denmark.

Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles, -Vietnam has a comparative advantage over other countries and Vietnam will import textiles. -Vietnam has a comparative advantage over other countries and Vietnam will export textiles. -other countries have a comparative advantage over Vietnam and Vietnam will import textiles. -other countries have a comparative advantage over Vietnam and Vietnam will export textiles.

Other countries have a comparative advantage over Vietnam and Vietnam will import textiles.

In which of the following tax systems does total tax liability increase as income increases? -Both proportional and progressive -Proportional but not progressive -Progressive but not proportional -Neither proportional nor progressive

Progressive but not proportional

Without government intervention, the equilibrium would be -Q1 -Q2 -Q3 -Q4

Q3

The deadweight loss associated with a tax on a commodity is generated by -the consumers who still choose to consume the commodity but pay a higher price that reflects the tax. -the consumers who choose to not consume the commodity that is taxed. -all citizens who are able to use services provided by government. -the consumers who are unable to avoid paying the tax.

The consumers who choose to not consume the commodity that is taxed

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal? -They are equal. -The equilibrium quantity is greater than the socially optimal quantity. -The equilibrium quantity is less than the socially optimal quantity. -There is not enough information to answer the question.

The equilibrium quantity is greater than the socially optimal quantity.

Scenario 12-3 A taxpayer faces the following tax rates on her income: 25 percent of the first $45,000 of her income;30 percent of all her income above $45,000. Refer to Scenario 12-3. The taxpayer faces -an average tax rate of 30 percent when her income is $45,000. -an average tax rate of 26 percent when her income is $55,000. -a marginal tax rate of 30 percent when her income rises from $35,000 to $35,001. -a marginal tax rate of 50 percent when her income rises from $45,000 to $55,000.

a marginal tax rate of 30 percent when her income rises from $35,000 to $35,001.