ECON 1000 Final Steffans & Whitworth Fall 2019

The University of California at Irvine (UCI) allows student organizations and private firms to sell items on campus to raise funds for various activities. Many of the organizations sell boba, a Taiwanese tea drink, because boba is popular with students. The market for boba on the UCI campus is very competitive. If legislation is passed to restrict the entry of private firms into the boba market at the UCI campus, the

market would become less competitive.

16. When the price of an hour of tutoring increases, the:

quantity demanded for tutoring decreases.

If a firm has total costs of $535,000 and its implicit costs are $165,000, how much are its explicit costs?

$370,000

The equation of a firm's marginal revenue curve is estimated to be P = 50 - Q (quantity), and the equation of its marginal cost curve is estimated to be P = 10 + 3Q. The profit-maximizing price for this firm is

$40

Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. How much is the total consumer surplus in this market?

$5.25

What would be the quantity demanded if a price ceiling is set at $1,000?

$68,000

Lauren is the owner of a bakery that earns 0 (zero) economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her total explicit costs were

$92,000

(7) In 2009, the federal government created a program called Cash for Clunkers whereby consumers could trade in a less efficient car for a more efficient car and receive a higher value than they would have otherwise. How would an economist understand the decision that consumers faced?

(a) Consumers would compare the marginal benefits to the marginal costs of replacing their cars, and this program made sure that marginal benefits exceeded marginal costs.

(22) Which of the following is true about the Great Depression?

(a) Following the Great Depression of 1929,the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand.

(12) Which of the following is a normative statement?

(a) You should wear a helmet when cycling.

(39) Indifference curves further from the origin (to the Northeast) imply:

(a) a higher level of satisfaction.

(26) Economists who subscribe to the rational expectations hypothesis ("rationality")

(a) base their belief on the economic assumption that people behave in predictable, repeatable ways that maximize their utility.

(38) The idea that a consumer is limited to selecting a bundle of goods that is affordable is captured by the:

(a) budget constraint.

(41) While many boutique shops include only normal goods, some also offer a selection of inferior goods. These shops include inferior goods because the demand for these products will increase:

(a) during bad economic times.

(14) One reason that economists make assumptions when designing models is to:

(a) exclude variables that do not add predictive power to the model.

(10) Saudi Arabia has a comparative advantage in producing oil because it:

(a) has specialized in the production of oil given its natural resources.

(11) A positive statement:

(a) is a claim that can be tested.

(25) Monetarists conclude that the primary determinant of changes in nominal GDP is

(a) money growth.

(17) A town on the Gulf Coast is battered by a massive hurricane that destroys most of its productive resources. The community's production possibilities frontier (PPF) would show a(n):

(a) parallel inward shift ofthe PPF.

(Refer to the following graph to answer the following three questions.) (18) Which point on the figure shows inefficient use of resources?

(a) point A

(33) The law of supply states that, all other things being equal:

(a) the quantity supplied falls when the price falls, and the quantity supplied rises when the price rises.

(34) Which of the following will cause a movement along a good's supply curve?

(b) The price of the good increases.

(35) During the winter months, many elderly persons leave their homes in northern New York and travel south to Florida or Arizona. What would you expect to happen to the equilibrium price and quantity of items most used by the elderly in northern New York?

(b) They would both decrease.

(15) Ceteris paribus, if a society is producing at a point on the production possibilities frontier (PPF), it can only increase the production of one good by:

(b) decreasing the production ofthe second good.

(9) Comparative advantage emerges because of the presence of:

(b) differing opportunity costs.

(3) Thomas Malthus's prediction of mass starvation failed to come true because of increases in:

(b) productivity.

(23) John Maynard Keynes argued that_______

(b) stickiness in wages and prices could block adjustments to full employment,thus creating a need for government intervention in the economy

(29) According to the law of demand, all other things being equal:

(b) the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls.

(32) Companies use advertising to shift consumer demand. When companies run commercials and product placements, which of the following demand shifters are advertisers relying on?

(c) changes in tastes and preferences

(21) Prior to the Great Depression of the 1930s, mainstream macroeconomics was dominated by

(c) classical economics.

(24) The Smoot-Hawley Tariff Act of 1930

(c) dramatically raised tariffs on products imported into the U.S. and led to retaliatory trade-restricting legislation around the world.

(13) Ceteris paribus means:

(c) other things being equal.

(30) A decrease in demand is represented by a:

(c) shift of the demand curve to the left.

(4) What is the opportunity cost of taking this exam?

(c) the highest-valued alternative that you gave up to prepare for and attend the exam

(16) How will a reduction in the national unemployment rate affect a nation's production possibilities frontier (PPF)?

(d) It will move society outward to a point closer to or on the PPF.

(36) Shoes are considered to be a normal good. What would happen to the equilibrium price and equilibrium quantity of shoes if income increases and the cost of labor to produce shoes increases?

(d) The equilibrium price will go up and equilibrium quantity will be indeterminate.

(8) Some public transit systems use an "honor system" whereby patrons have to show that they have paid their fare only when asked for it by an enforcement officer. With what population would such a system be successful?

(d) a population that is unwilling to take risks and believes there is a high chance that they will be caught if they do not pay their fare

(31) If the price of a good increases, holding all else constant, the:

(d) demand for all of that good's substitutes will increase.

(27) In class, we discussed the US as having a:

(d) mixed economy

(5) An example of a direct, positive incentive is:

(d) providing a commission for sales.

(40) When making personal buying decisions, two important issues to consider are the

(d) satisfaction you receive from the choices that you make and the constraints of a limited budget.

(2) The opportunity cost of a purchase is:

(d) the alternative good or service that one sacrifices because a different good was purchased.

(6) In the area of many college campuses, parking spaces are often scarce. If these parking spaces have parking meters, which population described below would pay for parking?

(e) a population thatis unwilling to take risks, believes there is a high chance that they will be caught if they do not pay their share, and places a high value on doing the "right"thing

(37) When the price is ________the equilibrium price, we would expect there to be a ________, causing the market to put________ pressure on the price until it went back to the equilibrium price.

(e) above; surplus; downward

(Refer to the following graph to answer the following three questions.) (19) Based on the graph, what is the most preferred consumption point for a pie-appreciating society?

(e) point E

Market for a new hardcover book: Demand: Qd = 325 - 8 P Supply: Qs = -60 + 3 P 8. What would be the quantity demanded if a price ceiling is set at $50?

45

23. The combination of goods and services that maximizes utility for a given income is called

the consumer optimum.

The market for candles is perfectly competitive and is currently in equilibrium. What will happen if candles are later linked to more houses catching on fire?

In the short run, firms will incur economic losses, butin the long run, firms will leave the market, raising economic profits.

17. Which of the following would cause the demand curve to shift to the right?

Income decreases for an inferior good.

9. Which of the following is a positive statement?

Increases in the minimum wage cause unemployment.

20. Wine and cheese are complement goods because they are consumed together. What would you expect to happen to the equilibrium quantity of cheese if the price of wine increased and all else is held constant?

It would decrease because of a demand shift.

27. In 2009, the Obama administration advocated and Congress passed a massive spending and tax relief package of about $800 billion to stimulate aggregate demand. This policy would be favored by

Keynesian and new Keynesian economists.

Which of the following is the fairest split proposal Laura can offer?

Laura receives four slices and Sarah receives four slices.

The market for hot dogs on the streets of New York City can be considered close to a perfectly competitive market. Because there are so many individuals buying and selling hot dogs

Market forces set the price in the market.

Total revenue minus total cost is equal to

Profit

If a good is subject to a binding price ceiling and you purchase it on the black market, what do you expect to happen to the availability of the good over time?

The availability of the good will fall over time as both the supply and demand curves become more elastic. (The shortage of the good will rise.)

21. In agriculture, a "bumper crop" refers to a particularly productive harvest. If there is a bumper crop for wheat at the same time that more people become allergic to wheat, and all else is held constant, what will happen to the equilibrium price and quantity for wheat?

The equilibrium price will go down and equilibrium quantity will be indeterminate.

15. Which statement best describes the opportunity cost evident in the production possibilities frontier (PPF) for the corresponding figure?

The opportunity cost is constant because the PPF is a straight line.

18. Which of the following will cause a movement along a good's supply curve?

The price of the good increases.

19. Which of the following changes in the coffee market would shift the supply curve to the right?

The wage for employees in the coffee business decreases.

26. True/False: The classical school focused on the long-run forces that determined an economy's potential level of output.

True

Profit maximization occurs when

a firm expands output until marginal revenue is equal to marginal cost.

The term "market failure" refers to

a market that fails to allocate resources efficiently.

13. Which of the following conditions will result in the firm making an economic profit?

a. P > ATC

22. Diminishing marginal utility

a. occurs when the additional utility for each good declines as consumption increases.

Refer to the following figure to answer the five questions that follow. 13. In the figure, point A is:

an inefficient point.

3. Jamal is willing to pay $85 for a new jacket that sells for $70. Eddie is willing to pay $65 for that same jacket. What is the total consumer surplus for Jamal and Eddie?

b. $15

30. The Smoot-Hawley Tariff Act of 1930 contributed to the collapse of global trade

by raising tariffs on products imported into the U.S., which in turn led to retaliatory trade-restricting legislation around the world.

11. If a firm generates $240,000 in revenue, earns $120,000 in economic profit, and its implicit costs are $80,000, how much are its explicit costs?

c. $40,000

24. Joanna is deciding between consuming Good X and Good Y. At her current level of consumption, her marginal utility per dollar for Good X is greater than the marginal utility per dollar for Good Y. To achieve the consumer optimum, Joanna needs to

consume more of Good X or less of Good Y until the marginal utility per dollar for Good X and Good Y is equal.

Holding all else constant, when the price of a good increases

consumer surplus decreases.

4. MJM Products, Inc., designs and sells flannel jackets. The company is willing to sell a men's flannel jacket for as little as $45. Its main competitor is RL Outriggers, which is willing to sell the same men's flannel jacket for as little as $40. The current market price of that type of jacket is $57. What is the total producer surplus for the two firms?

d. $29

12. Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total explicit costs for the year were:

d. $66,000

Market for a new hardcover book: Demand: Qd = 325 - 8 P Supply: Qs = -60 + 3 P 7. What would be the quantity demanded if a price ceiling is set at $20?

d. 165

15. Should a firm always produce the level of output where marginal cost is lowest?

d. No, that might be the best choice, but it depends on the firm's marginal revenue.

6. Mortimer loves sushi. He loves sushi so much that he asks his congressional representative to work for passage of a binding price ceiling law. Who would be affected by this law and how?

d. Some consumers would benefit from such a law because prices for sushi would be lower for those able to buy it in the legal market.

1. Why do government leaders impose price controls?

d. They are trying to ensure that a social goal is satisfied.

16. Every year the U.S. sugar industry, which is dominated by only a few firms, spends millions of dollars lobbying members of Congress and contributing to their re-election campaigns. It does so for both Democrats and Republicans. One goal of these contributions is the preservation of the U.S. sugar quota, which limits the importation of less expensive sugar from other countries. Ultimately, all of these activities are motivated by a desire among U.S. sugar producers to:

d. keep their profits as high as possible.

Producer surplus is defined as the:

difference between the price the seller receives and the willingness to sell it. Market for used cars: Demand: Qd = 154,000 - 86 P Supply: Qs = -100 + 14 P

9. Imagine you find yourself in a heat wave and your air conditioner has broken. Unable to find a new one at the store because of a price gouging law, you purchase an air conditioner on the black market. What role did the price gouging law have

e. It increased the incentive of individuals to supply the good on the black market.

14. Refer to the accompanying figure. A firm would be making positive profits if the price is: (graph)

e. above $5

5. When looking at a supply and demand graph, you would find producer surplus:

e. below market price and above the supply curve.

28. Prior to the Great Depression, the dominant economic view held that

economies should be able to reach full employment through a process of self-correction.

A monopoly

is characterized by a single seller who produces a well-defined product for which there are no good substitutes.

29. Early classical macroeconomics was based largely on the foundation of

flexible wages and prices.

Assume the game is played in an experimental session and both players follow bounded rationality. If Laura offers Sarah ____ slice(s), Sarah will be more likely to accept the offer than if Laura were to offer ____ slice(s).

four; one

Accountants consider only explicit costs when measuring profit, whereas economics consider both implicit and explicit costs. The reason that they ignore implicit costs is that

implicit costs are not out-of-pocket expenses

Which of the following characteristics best defines a public good?

non rival and non excludable

The standard economic model predicts that Laura will offer Sarah ___ slice(s) and Sarah ___ accept the offer.

one; will

8. The government has been trying to encourage the use of fuel-efficient cars. One way it has been doing this has been by allowing fuel-efficient cars to use a separate highway lane. This encourages people to use fuel-efficient cars because those who:

place a high value on their scarce time may be encouraged to buy a fuel-efficient car to take advantage of the speedier separate highway lane.

Refer to the following figure to answer the five questions that follow. 12. Which point in the corresponding figure shows that productive resources are NOT fully employed?

point A

Refer to the following figure to answer the five questions that follow. 11. Which point in the corresponding figure represents a combination of smoothies and milk shakes that society cannot currently produce?

point E

Which good is non-rival?

public radio

Tacit collusion

refers to the situation where firms implicitly cooperate on price but never make an explicit agreement; a legal strategy in the US

Which of the following characteristics best defines a private good?

rival and excludable

The hypothetical species Homo economicusis acutely aware of opportunities in the environment and"

strives to maximize the benefits received from each course of action while minimizing the costs.

(Refer to the following graph to answer the following three questions.) (20) You can see that the opportunity cost of moving from point B to point D is different from the opportunity cost of moving from point D to point C because:

the slope of the production possibilities frontier (PPF) is different in each of the two segments

Refer to the following figure to answer the five questions that follow. 14. In the figure, point E is:

unattainable with current resources.

25. The diamond-water paradox explains why

water, which is essential to life, is inexpensive, whereas diamonds, which do not sustain life, are expensive.