Econ120 Final exam

A sunk cost is one that

was paid in the past and will not change regardless of the present decision

If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is

zero, and the supply curve is vertical

If the size of a tax increases, tax revenue

may increase, decrease, or remain the same.

When a firm's average total cost curve continually declines, the firm is a

natural monopoly

When a monopolist is able to sell its product at different prices, it is engaging in

price discrimination

An oligopoly would tend to restrict output and drive up price if

firm collude and behave like monopoly

Economists make assumptions to

focus their thinking on the essence of the problem at hand

If there is a shortage of farm laborers, we would expect

the wage of farmworkers to increase

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 demand for a good or service is determined by

those who buy the good or service

8-5. After the tax is levied, consumer surplus is represented by area

A

An emergency siren (like we have at UMaine) is a public good and is associated with a positive externality.

true

Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Together, Eldin and Murphy can paint five houses per week. What is Murphy's marginal product?

two houses

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing

scarcity

The phenomenon of free riding is most closely associated with which type of good?

public goods

Suppose John and Wayne are the only two demanders of cowboy movies. Each month, John buys six cowboy movies when the price is $10 each, and he buys four cowboy movies when the price is $15 each. Each month, Wayne buys four cowboy movies when the price is $10 each, and he buys two cowboy movies when the price is $15 each. Which of the following points is on the market demand curve?

quantity demanded = 10; price = $10

11-1. Which of the following items is not a clear-cut example of the type of good represented by Box A?

a garden of blooming flowers

If a tax shifts the supply curve upward (or to the left), we can infer that the tax was levied on

sellers of the good

Suppose there is a decrease in the price of corn. If corn is an input into the production of ethanol, we would expect the supply curve for ethanol to

shift rightward

Internalizing a positive externality will cause the demand curve to

shift to the right

When quantity supplied increases at every possible price, we know that the supply curve has

shifted to the right

Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of

all of the above are correct

Which of the following would cause price to increase?

shortage of the good

Making rational decisions "at the margin" means that people

compare the marginal costs and marginal benefits of each decision.

8-14. Which of the following combinations will minimize the deadweight loss from a tax?

supply 1 and demand 1

When a market experiences a positive externality,

the demand curve does not reflect the value to society of the good

Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

the equilibrium quantity decreases, and the equilibrium price is unchanged.

Implicit costs

to not require an outlay of price by the firm

Economics is the study of

how society manages its scarce resources.

7-14. If the market price increases to $130 due to an increase in demand, then producer surplus is

$900

Today's demand curve for gasoline could shift in response to a change in

the expected future price of gasoline

10-11. "The social value of the last unit produced exceeds the private cost of the last unit produced by $13.50." This statement is correct at which quantity of output?

330 units

Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15%, then the quantity supplied of cheese will increase by

9% in the short run and 21% in the long run

13-5. Assume that fixed costs are $500, and variable costs are $100 per worker. For this firm, what are the shapes of the production function and the total-cost curve?

The production function is increasing at a decreasing rate, whereas the total-cost function is increasing at an increasing rate.

Under which of the following scenarios would a park be considered a public good?

Visitors can enter the park free of charge and there are always plenty of empty picnic tables.

You lose your job and, as a result, you buy more frozen pizzas. For you, frozen pizza are a(n)

inferior good

One reason that private solutions to externalities do not always work is that

interested companies incur cost in the bargaining process

A positive externality arises when a person engages in an activity that has

a beneficial effect on a bystander who does not pay the person who causes the effect.

If toast and butter are complements, then which of the following would increase the demand for toast?

a decrease in the price of butter

An equilibrium in which each firm in an oligopoly maximizes profit, given the actions of its rivals, is called

a nash equilibrium

When the social cost curve is above a product's supply curve,

a negative externality exists in the market.

An example of a private good would be

a sleeping bag

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,

a smaller quantity of the good is bought and sold

If duopolists individually pursue their own self-interest when deciding how much to produce, the profit-maximizing price they will charge for their product will be

less than the monopoly price

One way to eliminate the Tragedy of the Commons is to

limit the access to the commons

A tax

lowers the price buyers pay and raises the price sellers receive. places a wedge between the price buyers pay and the price sellers receive

A price floor will be binding only if it is set

above the equilibrium price

Negative externalities occur when one person's actions

adversely affect the well being of a bystander

Something that induces a person to act is called

an incentive

A monopoly firm is a price

maker and has no supply curve

The amount by which total cost rises when the firm produces one additional unit of output is called

marginal cost

If firms are competitive and profit maximizing, the price of a good equals the a. fixed cost of production. b. marginal cost of production. c. average total cost of production. d. total cost of production.

marginal cost of production

Producer surplus is the area

below the price and above the supply curve

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos rises?

bothe the equilibrium price and quantity will increase

A tax on the buyers of cameras encourages

buyers to demand a smaller quantity at every price

If two goods are complements, their cross-price elasticity will be

negative

7-1. If the price of the good is $200, then

consumer surplus is $150

We must be knowledgeable of how people behave in strategic situations if we are to understand

oligopolistic market

8-19. If the government changed the per-unit tax from $5.00 to $2.50, then the price paid by buyers would be $7.50, the price received by sellers would be $5, and the quantity sold in the market would be 1.5 units. Compared to the original tax rate, this lower tax rate would

decrease government revenue and decrease deadweight loss

the simplest way for a monopoly to arise is for a firm to a. make pricing decisions jointly with other firms. b. own a key resource. c. decrease its price below its competitors' prices. d. decrease production to increase demand for its product

own a key resource

In the simple circular-flow diagram, households

own the factors of production

Which of the following statements regarding a competitive market is not correct?

price exceeds marginal revenue

New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages, and automobile insurance becomes more expensive?

price will rise

Which of the following will cause no change in producer surplus?

the imposition of a nonbinding price ceiling in the market

Which of the following is not a determinant of demand?

the price of a resource that is used to produce a good

When a particular negative externality affects a very large number of people, it is likely that

the solution to externalities suggested by the Coase theorem will not work.

In deciding whether a good is a public good, one must determine the

excludability of the good.

A pizza is

excludable and rival in consumption

Causes of market failure include

externalities and market power

Suppose the equilibrium price of tuition is $8,500 per year, but the Government of Maine enacts a price ceiling of $5,000. The price ceiling is non-binding.

false

13-13. What is the average fixed cost for the month if 9 instructional modules are produced?

$120

8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on sellers is

$3

7-4. If tickets sell for $40 each, then what is the total consumer surplus in the market?

$30

An accountant would calculate the total cost for one birdhouse to be

$5

6-26. The effective price received by sellers after the tax is imposed is

$8

8-9. The consumer surplus without the tax is

$8,000

6-3. Following the imposition of a price floor $2 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting shortage is

0 units

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is

1

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is

1

7-21. Which area represents consumer surplus when the price is P1?

B

Which of the following statements about economic models is correct?

Because economic models omit many details, they allow us to see what is truly important

If consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins falls?

Both the equilibrium price and quantity would increase

7-21. Which area represents producer surplus when the price is P1?

C

Which of the following is an example of an externality?

all of the above are correct

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

The response of buyers and sellers to a change in the price of bananas is strong.

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML

can choose quantity of butter that it produces but not the price at which it sells its butter.

Price ceilings and price floors that are binding

cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price.

The economic inefficiency of a monopolist can be measured by the

deadweight loss.

The price paid by buyers in a market will decrease if the government

decreases a binding price floor in that market

Economists view positive statements as

descriptive, making a claim about how the world is.

13-9. At output levels greater than N, the firm experiences

diseconomies of sale

Denise values a stainless steel dishwasher for her new house at $500. The actual price of the dishwasher is $650. Denise

does not buy the dishwasher, and on her purchase she experiences a consumer surplus of $0.

Economists use the word equality to describe a situation in which

each member of society has the same income.

10-13. In order to reach the social optimum, the government could

impose a tax of $8 per unit on plastic

Using the midpoint method, if the price falls from $100 to $50, the price elasticity of demand is

inelastic. (chart question)

Stewart is a lobsterman. His traps are

private goods and the lobster he catches are common resources.

Buyers of a good bear the larger share of the tax burden when the (i) supply is more elastic than the demand for the product. (ii) demand in more elastic than the supply for the product. (iii) tax is placed on the sellers of the product. (iv) tax is placed on the buyers of the product.

supply is more elastic than the demand of the product (i only)

A minimum wage that is set above a market's equilibrium wage will result in an excess

supply of labor, that is, unemployment

Patrice owns a travel agency. Her accountant most likely includes which of the following costs on her financial statements?

the cost of utilities to operate the store front