ECON 251 FINAL EXAM REVIEW

A single price monopolist will choose a quantity where ____ and a price that is ___ than _____

MR=MC , greater, marginal cost

P=60 - 2Q P=10+3Q What is the value of producer surplus at equilibrium?

$150

Cost information for a firm is given in the table below. What is the average total cost of producing 10 units?

$22

P=60 - 2Q P=10+3Q If the government imposes a $10 per unit tax on this good, what price will sellers receive after the tax?

$34

P=60 - 2Q P=10+3Q What is the equilibrium price in this market?

$40

(Figure: Market) The graph shows the marginal social cost, demand, and supply curves in the jigsaw puzzle market. What is the size and type of externality in this market?

$6 positive consumption externality

(Table: The Market for Salt and Vinegar Chips) Use Table: The Market for Salt and Vinegar Chips. There is a surplus of 210 bags of salt and vinegar chips per month if the price is $_____ per bag

0.30

The price of desks increases from $20 to $40 and the quantity demanded of desks decreases from 50 to 30. Using the midpoint method, the absolute value of the price elasticity of demand is ___ which means the demand for desks is _____

0.75 ; inelastic

What is Tom's total utility from the third candy?

30

If a firm's total cost of producing 100 units is $400 and the marginal cost of the 100th unit is $30, what happens to the average total cost if quantity increases to 101?

ATC increases

The table provides recent data from the World Bank on average income and the distribution of income in four countries. According to the data in the table, which statement is correct regarding the situations of Sri Lanka and Mongolia?

Average income in the bottom quintile is higher in Mongolia than in Sri Lanka

Who has comparative advantage in which good?

Claire has comparative advantage in hats and Grace has comparative advantage in scarves

The proposition that, if bargaining is costless, the market can achieve an efficient outcome is the:

Coase Theorem

On which market will the burden of a tax fall completely on sellers?

PES=0

Which tax system is progressive? Corinne pays a 10% tax on the first $10,000 she earns plus _____ tax on any additional income

a 25%

(Figure: Payoff Matrix for Antojito and Carolina Reaper) Use Figure: Payoff Matrix for Antojito and Carolina Reaper. A Nash equilibrium occurs when Carolina Reaper produces a _____, and Antojito produces a_____

high quantity; high quantity

(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if there external costs associated with this good, the output at Q will be:

larger than is socially desirable

The economic burden of a tax on a good falls entirely on consumers only if the price:

paid by consumers for the good increases by the amount of the tax

Firms earn zero economic profit when

price equals average total cost

(Figure: Tax on Gasoline) The figure shows the effects of a tax on gasoline. If a tax on gasoline of $1.10 per gallon is imposed, the price paid by consumers will:

rise by $0.50

If you are able to price discriminate, you would charge the group with the ____ elasticity a ____ price and the group with the _____ elasticity a lower price

lower ; higher ; higher

(Figure: Public Goods and Common Resources) Use Figure: Public Goods and Common Resources. The figure lists the type of goods that are available for consumption. Panel D depicts a good that is both nonrival in consumption and nonexcludable. Such a good would be considered a:

public good

You are an economist for the state of California, where the government has already implemented a cap-and-trade program for greenhouse gas emissions. However, the California Air Resources Board has identified an additional pollutant it would like to reduce. Working with the Board, your analysis reveals a marginal external cost of $2 but not the socially optimal quantity. Your recommendation is to introduce a:

tax equal to marginal external cost

P=60 - 2Q P=10+3Q If the government imposes a price ceiling of $28 on this market, which of the following would we expect to occur?

The marginal benefit of the last unit sold will be $48

The absolute value of the price elasticity of demand for eggs is 3.5 and the price elasticity of supply of eggs is 0.5. The price of eggs is $5 per carton before a $2 tax is placed on eggs. Which of the following is true based on this statement?

The producer's tax burden per unit will be less than $2 but more than $1

Deadweight loss is calculated as:

economic surplus at the efficient quantity minus economic surplus at the actual quantity

(Figure: The Domestic Supply and Demand for Recreational Vehicles (RVs) in the United States) The figure shows the domestic supply and demand for recreational vehicles (RVs) in the United States. Suppose the world price of RVs is $50,000, and there is free trade. The United States would _____ Recreational Vehicles

export 6 million

According to the total revenue rule, based on this price elasticity of demand for desks,

if you increase the price of desks total revenue will increase

Your city imposes a tax on indoor tanning. Demand is highly elastic and supply is highly inelastic. Who pays the higher tax burden?

tanning salons

If there is currently a shortage in a market, then

the quantity demanded exceeds the quantity supplied, and there is upward pressure on the price

(Figure: Market for TVs) The figure shows the global market for televisions. According to the figure, at a world price of $600:

the quantity supplied exceeds the quantity demanded, and there is downward pressure on the world price

There are 8 firms in a market. Four of these firms have a market share of 20% and the four other firms have a market share of 5% each. What is the HHI in this market?

1700

Gerald sells pizzas in a perfectly competitive market and the price of a pizza is $15. He has fixed cost of $20 and his variable cost is given in the table below. If Gerald follows the rational rule for sellers he should sell ___ pizzas

50

(Figure: Market 4) The graph shows the marginal social benefit, demand, and supply curves in thetoothbrush market. Market forces would yield a quantity of _____, whereas the socially optimal quantity is_____

8; 12

(Figure: Vitamin B12 Curves) Vitamin B12 is one the most popular supplements in the United States, as low B12 commonly causes fatigue. You are advising Superior Supplement Manufacturing, a company that manufactures wholesale B12 drops, on their pricing strategy. The graph shows the firm's demand and marginal revenue curves for daily sales of vitamin B12 cases. The marginal cost per case is $18. The market price is$_____, and the price at the output best for society is $_____

19; 18

Tom spends his income on two goods: candy and soda. His marginal utility each good is in the table below. The price of candy is $5 and the price of a soda is $3. What is his optimal consumption bundle?

2 candy, 3 soda

Suppose Claire is making only hats and Grace is planning on making only scarves. They decide to change things up a bit and have Grace make one less scarf and more hats. How many scarves and hats would they have? Assume that partial hats and scarves are possible.(HINT: Use a joint PPC to visualize this problem and start at the point where they are each producing what they have comparative advantage in)

2 scarves and 7.67 hats

If steak is a normal good, when incomes rise, the equilibrium price will _____, and the equilibrium quantity will _____

increase; increase

Mustafa assembles collages from scrap, which he gathers for free at a local dump, and sells the collages on eBay. To collect scraps and assemble a collage, he must take a day off work, sacrificing $280 in income. Given that eBay takes a 10% cut on each sale, how much producer surplus would Mustafa earn if he sells a collage for$400?

$80

(Figure: Market 3) The graph shows the marginal social cost, demand, and supply curves in the cinnamon roll market. A corrective tax of $_____ per unit will move the cinnamon roll market to the socially optimal output of _____ units

2; 8

Grace and Claire are working on making crafts for a craft show. In a single day Grace can make 3 scarves or5 hats. In the same time Claire can make 2 scarves or 6 hats. In Grace and Claire's joint PPC, which of the following combinations would be impossible or unattainable?

4 scarves and 4 hats

(Figure: Market for TVs 2) The figure shows the domestic market for televisions. According to the figure, if there is international trade in this market, and the world price of televisions is $500, domestic consumers will purchase _____ units from domestic producers and _____ units from foreign producers.

40,000; 30,000

(Figure: Market 2) The graph shows the marginal social cost, demand, and supply curves in the shower gelmarket. In this market, the socially optimal output is _____, and the market-determined output is _____

4; 6

If two of the firms with 5% market share merged, would this be of interest to the Department of Justice, and why or why not?

No because the HHI is less than 2500 post merger

An investor is franchising a new type of fitness studio that will be the first in the city and must determine how many locations to open. For each location, they will hire a manager for a salary of $4,000 per month and two part-time employees who will earn $2,000 each per month. The investor values their time spent overseeing each location at $7,500 per month. Additional operating costs, including rent and utilities, will be $6,000 per month at each location. The investor projects that when the business gains traction, the first location will have1,000 members. The second location will bring in 900 members. The third and fourth locations will bring in 300and 200 members, respectively. The monthly membership fee will be $70 per member. The investor has decided to definitely open two locations. Should they open a third location?

No, because marginal cost would exceed marginal benefit

(Figure: Shifts in Demand and Supply) Use Figure: Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose there is a freak snowstorm in Florida that destroys one-quarter of the orange crop. Which panel BEST illustrates how this event will affect the market for vitamin C tablets, which are a substitute in consumption for oranges?

c

The larger the gini coefficient the ___ the ____

greater the income inequality

(Figure: Payoff Matrix for Antojito and Carolina Reaper) Use Figure: Payoff Matrix for Antojito and Carolina Reaper. The combined profit of Carolina Reaper and Antojito is maximized when Carolina Reaper produces a _____, and Antojito produces a _____

low quantity; low quantity

In a market with many firms, no barriers to entry, and homogeneous products, in the long run

price will equal the minimum of average total cost and firms earn normal economic profit

In 1963, in the United States, the official poverty line for a family of four was just under $3,000. Today it is about $27,500. This increase reflects:

the impact of rising prices