Exam 3- Eco 101
Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $150. Rebecca and Susan agree on a price of $175. Suppose the government imposes a tax of $10 on dog sitting. The tax has made Rebecca and Susan worse off by a total of
$10
Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?
$10 and 100 units
we can measure the profits earned by a firm in a competitive industry as
(P-ATC) x Q
total profit for a firm is calculated as
(price minus average cost) times quantity
Scenario 14-4The information below applies to a competitive firm that sells its output for $40 per unit.• When the firm produces and sells 150 units of output, its average total cost is $24.50.• When the firm produces and sells 151 units of output, its average total cost is $24.55. Refer to Scenario 14-4. When the firm produces 150 units of output, its profit is
2,325.00
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. Refer to Scenario 14-2. At Q = 999, the firm's profits equal
4,990
tariffs cause
DWL
Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22. Given this information, what should the firm do?
Increase output beyond 200 units, since a higher output will yield the profit maximizing output level.
Scenario 8-2Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. Refer to Scenario 8-2. Assume Roland is required to pay a tax of $10 each time he mows a lawn.
Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn
Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level of output, her average total cost of production is $7.00, and her average variable cost of production is $6.00. Which of the following statements about Mrs. Smith's firm is correct?
Mrs. Smith is earning a loss but should continue to operate in the short run
The nation of Cranolia used to prohibit international trade, but now trade is allowed, and Cranolia is exporting furniture. Relative to the previous no-trade situation, buyers of furniture in Cranolia are
NOT better off
externalities cannot be positive
NOT true
a positive externality
a benefit to someone other than the producer and consumer of the good
a corrective tax
a fine that is issued after air-pollution
economists hold different views
about the elasticity of labor supply
Suppose a country abandons a no-trade policy in favor of a free-trade policy. If, as a result, the domestic price of pistachios decreases to equal the world price of pistachios, then
at the world price, the quantity of pistachios demanded in that country exceeds the quantity of pistachios supplied in that country.
trade decisions are NOT
based on the principle of absolute advantage
Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will
be shared by the buyers and sellers of fast-food French fries but not necessarily equally
who is the price taker in a competitive market?
both buyers and sellers
When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,
buyers of the good will bear most of the burden of the tax
the change in TS is represented
by a gain in TS
a firm that has little ability to influence market prices operates in a
competitive market
When the nation of Mooseland first permitted trade with other nations, domestic producers of sugar experienced a decrease in producer surplus of $5 million and total surplus in Mooseland's sugar market increased by $2 million. We can conclude that
consumer surplus in Mooseland increased by $7 million
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
decreasing output would increase the firms profit
if a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
decreasing output would increase the firms profit
Corrective taxes differ from most taxes in that corrective taxes
do not cause DWL
corrective taxes
do not cause DWL
a $2 tax per gallon of paint places on the buyers of paint will shift the demand curve
downward by exactly $2
when new firms have an incentive to enter a competitive market, their entry will
drive down profits of existing firms
For a firm in a perfectly competitive market, the price of the good is always
equal to marginal revenue
if a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will
exactly triple
accountants account for
explicit cost but ignore operating costs
The world price of a pound of almonds is $4.50. Before Uruguay allowed trade in almonds, the price of a pound of almonds there was $3.00. Once Uruguay began allowing trade in almonds with other countries, Uruguay began
exporting almonds and the price per pound I Uruguay increased $4.50
When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will
give sellers the incentive to account for the external effects of their actions
at any given quantity, the willingness to pay in the market for gasoline is reflected in the
height of the demand curve at the quantity
what best reflects a price-taking firm?
if the firm were to change more than the going price, it would sell none of its goods
In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.
in the short run firms will shut down, and in the long run will leave the market
world place
is higher than domestic price (w/out trade) and they have a comparative advantage. that country becomes exporter of the good.
if firms are competitive and profit maximizing, the price of a good equals the
marginal cost of production
in a market economy, government intervention
may improve market outcomes in the presence of externalities
in a market economy, government intervention
may improve market outcomes in the presence of externalities.
if a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that
none of the above
If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then
one-unit increase in output will increase the firms profit
a technology spillover is a type of
positive externality
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 does not choose the
price at which it sells its butter
Zelzar has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. Which groups in Zelzar are better off as a result of the new free-trade policy?
producers of steel and consumers of incense
a key characteristic of a competitive market is that
producers sell nearly identical products
When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?
provide a subsidy equal to the value of the technology spillover
a tax on a good
raises the price that buyers effectively pay and lowers the price that sellers effectively receive
a decrease in output would
reduce the external cost
Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to
remain unchanged
governments
should tax goods w/ negative externalities and subsidize goods w/ positive externalities and governments can be used to solve externalities
Since almost all forms of transportation produce some type of pollution
society has to weigh the cost and benefits when deciding how much pollution to allow
A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the
supply curve for paper would shift to the left
one result of a tax
tax reduces the welfare of both buyers and sellers.. tax causes the market to decrease
The benefit that government receives from a tax is measured by
tax revenue
Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon. As a result,
the DWL of the tax necessarily decreases
w/ free trade, and a 5 unit tariff
the country imports 40 units
not a commonly-advanced argument for trade restrictions
the efficacy argument
When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing
the entry of new firms
If education produces positive externalities, we would expect
the equilibrium quantity to be lower than the optimal level, the government to subsidize education
Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?
the firm will immediately stop production to minimize its losses
When a certain nation abandoned a policy of prohibiting international trade in automobiles in favor of a free-tree policy, the result was that the country began to import automobiles. The change in policy improved the well-being of that nation in the sense that
the gains to automobile consumers in that nation exceeded the losses of the automobile producers in that nation
as the size of a tax increases
the governments tax revenue rises, then falls
externality
the impact of one persons actions on the wellbeing of a bystander
the more elastic the supply
the larger the deadweight loss from a tax
When a country allows trade and becomes an importer of bottled water, which of the following is not a consequence?
the losses of domestic producers of bottled water exceed the gains of domestic consumers of bottled water
Which of these curves is the competitive firm's short-run supply curve?
the marginal cost curve above average variable cost
taxes increase
the price paid by the buyer and decrease the price received by the seller
Suppose France imposes a tariff on wine of 3 euros per bottle. If government revenue from the tariff amounts to 30 million euros per year and if the quantity of wine supplied by French wine producers, with the tariff, is 8 million bottles per year, then we can conclude that
the quantity of wine demanded by France, with the tariff, is 18 million bottles per year
University researchers create a positive externality because what they discover (produce) in their research labs can easily be learned by others who haven't contributed to the research costs. Suppose that the federal government gives grants to these researchers equal to the their per-unit production externality. What is the relationship between the equilibrium quantity of university research and the socially optimal quantity of university research produced? or Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?
they are equal
You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $6 value on reading a book.
you should stay and watch the remainder of the show
in the long run, each firm in a competitive industry earns
zero economic profits
