EC 110 Final Exam Practice Problems

11) Vineyards can grow either red wine grapes or white wine grapes on their land. Which of the following would cause the supply of red wine grapes to decrease? A) an increase in the price of white wine grapes B) a decrease in the price of white wine grapes C) an increase in the demand for red wine grapes D) an increase in the price of red wine

A

17) Refer to Figure 4-5. What is the value of producer surplus after the imposition of the ceiling? A) $40,000 B) $100,000 C) $300,000 D) $430,000

A

19) Refer to Figure 4-5. What is the value of the deadweight loss after the imposition of the ceiling? A) $50,000 B) $125,000 C) $175,000 D) $260,000

A

23) Consumer surplus in a market for a product would be equal to ________ if the market price was zero. A) zero B) the area between the supply curve and the demand curve C) the area above the supply curve D) the area under the demand curve

A

31) If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then A) the price elasticity of demand for teapots is greater than 1 in absolute value. B) the demand for teapots is unit-elastic. C) the price elasticity of demand for teapots is equal to zero. D) the price elasticity of demand for teapots is less than 1 in absolute value.

A

36) Refer to Figure 9-1. Under autarky, the producer surplus is A) $40 B) $105 C) $195 D) $285

A

53) The demand curve for each seller's product in perfect competition is horizontal at the market price because A) each seller is too small to affect market price. B) the price is set by the government. C) all the sellers get together and set the price. D) all the demanders get together and set the price.

A

54) Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms? A) Restaurants do not sell identical products. B) Restaurants compete in small market areas - neighborhoods and cities - rather than in regional or national markets. Therefore, restaurants are not small relative to their market size. C) Restaurants usually have entry barriers in the form of zoning restrictions and health regulations. D) Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning.

A

7) Refer to Figure 2-6. If the economy is currently producing at point C, what is the opportunity cost of moving to point B? A) 10 thousand wrenches B) 13 thousand hammers C) 30 thousand wrenches D) 23 thousand hammers

A

16) Refer to Figure 4-5. What is the value of consumer surplus after the imposition of the ceiling? A) $120,000 B) $230,000 C) $270,000 D) $430,00

B

18) Refer to Figure 4-5. What is the value of the portion of producer surplus transferred to consumers as a result of the rent ceiling? A) $40,000 B) $100,000 C) $125,000 D) $140,000

B

24) The total amount of producer surplus in a market is equal to A) the difference between quantity supplied and quantity demanded. B) the area above the market supply curve and below the market price. C) the area above the market supply curve. D) the area between the demand curve and the supply curve below the market price.

B

28) Refer to Figure 5-2. The private profit maximizing quantity for the firm is A) Qa. B) Qb. C) Qb - Qd. D) Qd.

B

3) Which of the following is a positive economic statement? A) The standard of living in the United States should be higher. B) If the price of iPhones falls, a larger quantity of iPhones will be purchased. C) The government should revamp the health care system. D) The U.S. government should not have bailed out U.S. auto manufacturers.

B

35) Refer to Figure 9-1. Under autarky, the consumer surplus is A) $195. B) $260. C) $300. D) $555.

B

37) Refer to Figure 9-1. Under autarky, the deadweight loss is A) $0. B) $15. C) $30. D) $40.

B

38) Refer to Figure 9-2. The tariff revenue collected by the government equals the area A) D + E + F. B) E. C) B + D + E + F. D) C + D + E + F.

B

4) Refer to Figure 2-4. A movement from X to Y A) could be due to a change in consumers' tastes and preferences. B) could occur because of an influx of immigrant labor. C) is the result of advancements in food production technology only, with no change in the technology for plastic production. D) is the result of advancements in plastic production technology only, with no change in food production technology.

B

40) In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes agree to voluntary export restraints. With voluntary export restraints, foreign producers A) agree to meet specific quality standards required by the importing country. B) limit their exports to a country. C) pay a tax on all products they export. D) must agree to import an equal quantity of products that they export.

B

42) Refer to Table 10-1. What is Keegan's optimal consumption bundle? A) 3 pita wraps and 3 bubble teas B) 3 pita wraps and 4 bubble teas C) 4 pita wraps and 2 bubble teas D) 5 pita wraps and 0 bubble teas

B

48) Refer to Table 11-1. What is the average product of labor when the farm hires 5 workers? A) 4 pounds B) 10.8 bushels C) 38.2 pounds D) 54 pounds

B

49) Refer to Table 11-1. Diminishing marginal returns sets in when the ________ worker is hired. A) 2nd B) 3rd C) 4th D) None of the above; the production function displays increasing marginal returns.

B

50) Which of the following statements is false? A) When marginal cost equals average total cost, average total cost is at its highest value. B) The marginal cost curve intersects the average variable cost curve and the average total cost curve at their minimum points. C) The difference between average total cost and average fixed cost is average variable cost. D) Firms often refer to the process of lowering average fixed cost as "spreading the overhead."

B

51) Refer to Figure 11-7. When the output level is 100 units average fixed cost is A) $10. B) $8. C) $5. D) This cannot be determined from the diagram.

B

6) Refer to Figure 2-6. If the economy is currently producing at point A, what is the opportunity cost of moving to point B? A) 8 thousand wrenches B) 6 thousand hammers C) 30 thousand wrenches D) 23 thousand hammers

B

9) Which of the following would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of salmon? A) a decrease in demand and an increase in supply B) an increase in supply C) an increase in supply and an increase in demand greater than the increase in supply D) a decrease in demand and a decrease in supply

B

12) Which of the following would cause a decrease in the supply of milk? A) an increase in the price of cookies (assuming that milk and cookies are complements) B) a decrease in the price of milk C) an increase the price of a product that producers sell instead of milk D) an increase in the number of firms that produce milk

C

13) Refer to Figure 3-1. An increase in population would be represented by a movement from A) A to B. B) B to A. C) D1 to D2. D) D2 to D1.

C

15) Refer to Figure 4-5. With rent control, the quantity supplied is 200 apartments. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest rent they can get per month? A) $1,000 B) $1,500 C) $2,000 D) $2,300

C

20) Refer to Table 4-3. The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the market price of The Waco Kid's cowboy hats is $40 A) The Waco Kid will produce four hats. B) producer surplus from the first hat is $40. C) producer surplus will equal $28. D) there will be a surplus; as a result, the price will fall to $24.

C

21) Refer to Table 4-3. The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the price of cowboy hats increases from $38 to $46 A) consumers will buy no cowboy hats. B) the marginal cost of producing the third cowboy hat will increase to $46. C) producer surplus will rise from $22 to $46. D) there will be a surplus of cowboy hats.

C

25) What is a "social cost" of production? A) the cost of the natural resources used up in production B) the total costs of producing a product, both implicit and explicit costs C) the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product D) the cost of the environmental damage created by production

C

26) A positive externality causes A) the marginal social benefit to be equal to the marginal private cost of the last unit produced. B) the marginal social benefit to be less than the marginal private cost of the last unit produced. C) the marginal social benefit to exceed the marginal private cost of the last unit produced. D) the marginal private benefit to exceed the marginal social cost of the last unit produced.

C

27) Refer to Figure 5-2. The efficient output level is A) Qd. B) Qb. C) Qa. D) Qb - Qd.

C

32) Which of the following statements is true? A) If the price of a good is lowered and total revenue decreases, demand is elastic. B) If the price of a good is raised and total revenue does not change, demand is perfectly elastic. C) If the price of a good is raised and total revenue increases, demand is inelastic. D) If the price of a good is lowered and total revenue increases, demand is inelastic.

C

33) At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised her price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is A) perfectly elastic. B) inelastic. C) perfectly inelastic. D) unit-elastic.

C

34) Refer to Figure 6-6. As price falls from PA to PB, the quantity demanded increases most along D1; therefore, A) D1 is unit elastic. B) D1 is more inelastic than D2 or D3. C) D1 is more elastic than D2 or D3 D) D1 is elastic at PA but inelastic at PB.

C

39) Countries that engage in trade will tend to specialize in the production of goods and services in which they have ________ and will ________ these goods and services. A) a comparative advantage; import B) an absolute advantage; export C) a comparative advantage; export D) an absolute advantage; import

C

41) If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is A) 25 utility units. B) 20 utility units. C) 5 utility units. D) unknown as more information is needed to determine the answer.

C

44) The income effect of an increase in the price of salmon A) is the change in the demand for salmon when income increases. B) refers to the relative price effect - salmon is more expensive compared to other types of fish - which causes the consumer to buy less salmon. C) refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant. D) is the change in the demand for other types of fish, say trout, that result from a decrease in purchasing power.

C

45) What is the endowment effect? A) the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency B) the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services C) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it. D) the tendency of firms to use celebrities endowed with good looks to promote their products

C

5) If society decides it wants more of one good and all resources are fully utilized, then A) it is unable to do this unless technology advances. B) additional resource supplies will have to be found. C) it has to give up some of another good and incur some opportunity costs. D) more unemployment will occur.

C

55) Refer to Figure 12-1. If the firm is producing 700 units A) it is making a profit. B) it is making a loss. C) it should cut back its output to maximize profit. D) it should increase its output to maximize profit.

C

58) Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is A) 0. B) 130. C) 180. D) 240.

C

60) What is allocative efficiency? A) It refers to a situation in which resources are allocated to their highest profit use. B) It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost. C) It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. D) It refers to a situation in which resources are allocated fairly to all consumers in a society.

C

57) If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm A) is earning a profit. B) should shut down. C) is incurring a loss. D) is breaking even.

C?

1) In economics, the term "equity" means A) everyone has an equal standard of living. B) the hardest working individuals consume all they want. C) only elected officials have high standards of living. D) economic benefits are distributed fairly.

D

10) The graph in this figure illustrates an initial competitive equilibrium in the market for sugar at the intersection of D1 and S1 (point A). If there is an increase in the price of fertilizer used on sugar cane and there is a decrease in tastes for sugar-sweetened soft drinks, how will the equilibrium point change? A) The equilibrium point will move from A to B. B) The equilibrium point will move from A to C. C) There will be no change in the equilibrium point. D) The equilibrium point will move from A to E.

D

14) Suppose that when the price of raspberries increases, Lonnie increases his purchases of papayas. To Lonnie, A) raspberries and papayas are complements. B) raspberries and papayas are inferior goods. C) raspberries and papayas are normal goods. D) raspberries and papayas are substitutes.

D

2) In a modern mixed economy, who decides what goods and services will be produced? A) only the producers B) only consumers C) only the government D) all of the above

D

22) Consumers are willing to purchase a product up to the point where A) the marginal benefit of consuming the product is equal to the marginal cost of consuming it. B) the consumer surplus is equal to the producer surplus. C) the marginal benefit of consuming the product equals the area below the supply curve and above the market price. D) the marginal benefit of consuming a product is equal to its price.

D

29) When there is a negative externality, the private cost of production ________ the social cost of production. A) is greater than B) is equal to C) eliminates D) is less than

D

30) The demand for gasoline in the short run is A) elastic because people can easily switch to public transportation. B) perfectly inelastic because people have no choice but to buy gasoline. C) unit-elastic because people tend to consume a stable amount of gasoline per period. D) inelastic because there are no good substitutes for gasoline.

D

43) The substitution effect of an increase in the price of Raisin Bran refers to A) the decrease in the demand for Raisin Bran when its price rises. B) the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left. C) the fact that the higher price of Raisin Bran lowers consumer's purchasing power, holding money income constant. D) the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, cause consumers to buy less Raisin Bran.

D

46) Which of the following is an example of positive technological change? A) A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of surf boards. B) A firm buys an additional machine that it uses to make surf boards. As a result, the firm is able to increase its weekly production of surf boards. C) A firm conducts a new advertising campaign. As a result, the demand for the firm's surf boards increases. D) A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.

D

47) Which of the following is an implicit cost of production? A) interest paid on a loan to a bank B) wages paid to labor plus the cost of carrying benefits for workers C) the utility bill paid to water, electricity, and natural gas companies D) rent that could have been earned on a building owned and used by the firm

D

59) Refer to Figure 12-4. If the market price is $30 and if the firm is producing output, what is the amount of its total variable cost? A) $7,200 B) $6,480 C) $5,400 D) $3,960

D

8) The attainable production points on a production possibility curve are A) the horizontal and vertical intercepts. B) the points along the production possibilities frontier. C) the points outside the area enclosed by the production possibilities frontier. D) the points along and inside the production possibility frontier.

D

52) Refer to Figure 11-10. Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Qc units. What will happen to its average cost of production? A) In the short run, its average cost falls from $47 to $41, and in the long run, average cost falls even further to $37. B) In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41. C) In the short run, its average cost falls from $47 to $37, and in the long run, average cost rises to $41. D) In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls

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56) Refer to Figure 12-3. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. Identify the area that represents the loss. A) P2 deP1 B) P3cbP1 C) P3caP0 D) 0P1 bQ1

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