Econ Exam 2

Refer to Figure 9-13. Consumer surplus before trade is

a. $3,200. b. $3,600. c. $1,600. d. $2,400. B

Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 30 watermelons. If he plants 2 bags of seeds, he gets 50 watermelons. If he plants 3 bags of seeds he gets 60 watermelons. A bag of seeds costs $100, and the costs of seeds are his only costs. Which of the following statements is (are) true?

(i) Farmer Jack experiences decreasing marginal product. (ii) Farmer Jack's production function is nonlinear. (iii) Farmer Jack's total cost curve is linear. a. (ii) only b. (i) only c. (i) and (iii) only d. (i) and (ii) only D

Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. Julia's implicit costs are

a. $10,000. b. $25,000. c. $15,000. d. 0. A

Refer to Table 13-7. What is the value of G?

a. $140 b. $270 c. $360 d. $410 B

Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The producer surplus after this tax is

a. $15. b. $60. c. $45. d. $30. a

Doreen's Dairy produces and sells Swiss cheese. Last year, it produced 7,000 pounds and sold each pound for $6. In producing the 7,000 pounds, the dairy incurred variable costs of $28,000 and a total cost of $40,000. In producing the 7,000 pounds of cheese, the firm's average variable cost was

a. $5.71. b. $1.71. c. $4.00. d. $6.00. D

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus (per week)?

a. $50 b. $25 c. $0 d. $30 D

Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local gas station is $3.80. If she purchases ten gallons of gasoline, then Kelly's consumer surplus is

a. $52. b. $3.80. c. $14. d. $1.40. C

Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

a. $9 b. $5 c. $3 d. $7 D

Refer to Table 13-3. At which number of workers does diminishing marginal product begin?

a. 4 b. 2 c. 1 d. 3 D

Import quotas and tariffs produce similar results. Which of the following is not one of those results?

a. A deadweight loss is experienced by the domestic country. b. Producer surplus of domestic producers increases. c. Consumer surplus of domestic consumers increases. d. The domestic price of the good increases. C

Refer to Figure 9-15. Producer surplus with the tariff is

a. C + G. b. G. c. A + C + G. d. A + B + C + G. A

Refer to Figure 9-9. Consumer surplus in this market after trade is

a. C. b. A + B. c. A. d. A + B + D. C

Refer to Figure 9-3. If China were to abandon a no-trade policy in favor of a free-trade policy,

a. Chinese producers of pencil sharpeners would become worse off. b. Chinese consumers of pencil sharpeners would become better off. c. total surplus in the Chinese economy would increase. d. All of the above are correct. c

Refer to Figure 8-8. After the tax goes into effect, producer surplus is the area

a. D+F+J. b. D+F+G+H. c. J. d. D+F+G+H+J. C

Refer to Figure 13-3. Which of the following statements best captures the nature of the underlying production function (not pictured)?

a. Output increases at a decreasing rate with additional units of input. b. Output decreases at an increasing rate with additional units of input. c. Output decreases at a decreasing rate with additional units of input. d. Output increases at an increasing rate with additional units of input. A

Refer to Figure 9-4. Which of the following statements is accurate?

a. The gains from trade amount to $800. b. The gains from trade are represented on the graph by the area bounded by the points (0, $12), (300, $12), (300, $7) and (0, $7). c. Producer surplus with trade is $375. d. Consumer surplus with trade is $3,200. C

Which of the following is not a reason why government agencies subsidize basic research?

a. The private market devotes too few resources to basic research. b. The social benefit of additional knowledge is perceived to be greater than the cost of the subsidies. c. The government wants to attract the brightest researchers away from private research firms. d. The general knowledge developed through basic research can be used without charge. c

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 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?

a. They are equal. b. The after-tax equilibrium quantity is greater than the socially optimal quantity. c. The after-tax equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question. C

The difference between a corrective tax and a tradeable pollution permit is that

a. a permit creates a more deadweight loss than a corrective tax. b. a corrective tax creates a more deadweight loss than a permit. c. a corrective tax sets the quantity of pollution and a permit sets the price of pollution. d. a corrective tax sets the price of pollution and a permit sets the quantity of pollution. D

Refer to Table 7-2. If the price of Vanilla Coke is $6.90, who will purchase the good?

a. all five individuals b. Megan, Mallory and Audrey c. David and Laura d. David, Laura and Megan C

If marginal cost is rising,

a. average variable cost must be falling. b. marginal product must be rising. c. average fixed cost must be rising. d. marginal product must be falling. D

If an allocation of resources is efficient, then

a. consumer surplus is maximized. b. the allocation achieves equality as well. c. all potential gains from trade among buyers are sellers are being realized. d. producer surplus is maximized. C

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+J+K+L+M+Y represents

a. deadweight loss from the tax. b. consumer surplus before the tax. c. total surplus after the tax. d. total surplus before the tax. D

Refer to Figure 9-14. When the country for which the figure is drawn allows international trade in crude oil,

a. domestic crude-oil producers sell less crude oil. b. consumer surplus for domestic crude-oil consumers decreases. c. the demand for crude oil by domestic crude-oil consumers decreases. d. the losses of the domestic losers outweigh the gains of the domestic winners. B

The government provides public goods because

a. free-riders make it difficult for private markets to supply the socially optimal quantity. b. external benefits will accrue to private producers. c. private markets are incapable of producing these types of goods. d. markets are always better off with some government oversight. A

If the Korean steel industry subsidizes the steel that it sells to the United States, the

a. harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel. b. United States should protect its domestic steel industry from this unfair competition. c. United States should subsidize the products it sells to Korea. d. harm done to U.S. steel producers from this unfair competition exceeds the gain to U.S. consumers of cheap Korean steel. A

Refer to Figure 9-2. This country

a. has a comparative advantage in calculators. b. should export calculators. c. is a price taker in the world economy. d. All of the above are correct. D

Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

a. increase by $2. b. decrease by $3. c. decrease by $1. d. increase by $6. A

Refer to Figure 8-23. If the economy is at point B on the curve, then a small decrease in the tax rate will

a. increase the deadweight loss of the tax and increase tax revenue. b. decrease the deadweight loss of the tax and increase tax revenue. c. increase the deadweight loss of the tax and decrease tax revenue. d. decrease the deadweight loss of the tax and decrease tax revenue. B

Research into new technologies

a. is protected by patent laws, which eliminates the need for government intervention. b. should only be funded by the corporations that will receive the profits from the research. c. results in negative externalities because government funding for research causes less government spending in other areas. d. provides positive externalities because it creates knowledge others can use. D

Which of the following explains why long-run average cost at first decreases as output increases?

a. less-efficient use of inputs b. diseconomies of scale c. fixed costs becoming spread out over more units of output d. gains from specialization of inputs D

All remedies for externalities share the goal of

a. moving the allocation of resources toward the socially optimal equilibrium. b. moving the allocation of resources toward the market equilibrium. c. increasing the allocation of resources. d. decreasing the allocation of resources. A

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

a. nothing b. offer a subsidy on alcohol that is equal to the per-unit externality c. impose a tax on alcohol that is equal to the per-unit externality d. impose a regulation limiting the amount of alcohol that each consumer can purchase C

According to the Coase theorem, in the presence of externalities

a. private parties can bargain to reach an efficient outcome. b. government assistance is necessary to reach an efficient outcome. c. the initial distribution of property rights will determine the efficient outcome. d. the assignment of legal rights can prevent externalities. A

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

a. private parties can bargain with sufficiently low transaction costs. b. the externalities that are present are positive, not negative. c. government assigns property rights to the harmed party. d. businesses determine an appropriate level of production. A

A seller is willing to sell a product only if the seller receives a price that is at least as great as the

a. seller's producer surplus. b. seller's profit. c. average willingness to pay of buyers of the product. d. seller's cost of production. D

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

a. the cost of the labor that the firm uses b. the cost of the steel that is used in producing automobiles c. the cost of the electricity of running the machines on the factory floor d. All of the above are correct. D

One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of

a. welfare economics. b. energy markets. c. factor markets. d. labor economics. A

Refer to Figure 9-26. As a result of opening up the baseball market to international trade, the U.S. will​

a. ​import 400 baseballs. b. ​export 600 baseballs. c. ​import 600 baseballs. d. ​export 300 baseballs. B