MICRO ECON
Sofia pays Sam $50 to mow her lawn every week. When the government levies a mowing tax of $10 on Sam, he raises his price to $60. Sofia continues to hire him at the higher price. What is the change in producer surplus for Sam, consumer surplus for Sofia, and deadweight loss?
$0, -$10, $0
Larry's Lunchcart is a small street vendor business. If Larry makes 15 pretzels in his first hour of business and incurs a total cost of $16.50, his average total cost per pretzel is
$1.10.
If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $0.50 each, their total revenues are
$100.:Price times the quantity sold is called total revenue (TR=PxQ=($0.50)x(200)=$100.)
The following table presents cost and revenue information for a firm operating in a competitive industry. COSTS REVENUES QuantityProduced TotalCost MarginalCost QuantityDemanded Price TotalRevenue MarginalRevenue 0 $100 -- 0 $120 -- 1 $150 1 $120 2 $202 2 $120 3 $257 3 $120 4 $317 4 $120 5 $385 5 $120 6 $465 6 $120 7 $562 7 $120 8 $682 8 $120
$120
The following table presents cost and revenue information for a firm operating Referring to the table, what is the average revenue when 4 units are sold?
$120 TR=PxQ and AR=TR/Q. Since price is constant at $120, AR=(PxQ)/Q=P=$120
Referring to the diagram, suppose a $3 per-unit tax is placed on this good starting from an initial market equilibrium with no tax. The amount of tax revenue collected by the government is
$22.50.
The Flying Elvis Copter Rides Quantity TotalCost FixedCost VariableCost MarginalCost AverageFixedCost AverageVariableCost AverageTotalCost 0 $50 $50 $0 -- -- -- -- 1 $150 A B C D E F 2 G H I $120 J K L 3 M N O P Q $120 R Referring to the table, what is the value of G?
$270
Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's total revenue if it instead produced and sold 4 units of output?
$32
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced?
$4
Referring to the table, what is the value of M?
$410 FC=$50 at every Q. AVC=$120 at Q=3 according to the table so VC=AVCxQ=$120x3=$360. As a result, at Q=3, TC=FC+VC=$50+$360=$410.
Cindy's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is
$500.AVC=VC/Q, so VC=AVCxQ=$2x100=$200. AFC=FC/Q, so FC=AFCxQ=$3x100=$300. TC=FC+VC=$300+$200=$500.
Allen tutors in his spare time for extra income. Buyers of his service are willing to pay $40 per hour for as many hours Allen is willing to tutor. On a particular day, he is willing to tutor the first hour for $10, the second hour for $18, the third hour for $28, and the fourth hour for $40. Assume Allen is rational in deciding how many hours to tutor. His producer surplus is
$64.
Trevor's Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor's Tire Company's total profits are
$7,500.TC/Q so TC=ACxQ. Q=500 so TC=($50)x(500)=$25,000. TR=PxQ. P=$65, Q=500 so TR=($65)x(500)=$32,500. Profit=TR-TC=$32,500-$25,000=$7,500. [where TC: total cost, TR: total revenue, P: price, Q: quantity of output, AC: average cost]
Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers it produces 90 units of output. Fixed cost of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the total cost of production when the firm hires 7 workers?
$76
Referring to the figure, what is the equilibrium price in this market?
$8
The following table presents cost and revenue information for a firm operating in a com
$840 Feedback: At Q=7, TR=$120x7=$840.
Suppose that a monopolist can sell 5 units of output at a price of $5 or 6 units of output at a price of $4. What is the marginal revenue of the sixth unit?
-1
The price of good B increases by 4%, causing the quantity demanded of good A to decrease by 6%. The cross-price elasticity of demand is _____, and the goods are
-1.5; complements
Tonya consumes 10 boxes of ramen noodles a year when her yearly income is $40,000. After her income falls to $30,000 a year, she consumes 40 boxes of ramen noodles a year. Calculate her income elasticity of demand for ramen noodles.
-4.2
Referring to the table, what is the value of H?
. $50
Referring to the figure, what area measures the monopolist's profit?
. (K-B)*W
On the graph, Q represents the quantity of plastics and P represents the price of plastics. In order to reach the social optimum, the government could
. impose a tax of $8 per unit on plastics.
Referring to Table 6-2, at a price of $2.00, total surplus is
. smaller than it would be at the equilibrium price.
Table 5-1 shows the supply and demand for socks. If a price ceiling of $4 per pair is imposed by the government
. there will be a shortage of 10 pairs of socks
Table 5-1 shows the supply and demand for socks. If a price floor of $10 per pair is imposed by the government
. there will be a surplus of 6 pairs of socks
If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station
. All of the choices are correct.
In the long run, a firm that produces and sells textbooks gets to choose
. All of the choices are correct.
Which of the following is an example of a positive externality?
. Hillary's newly cut lawn makes her neighborhood more attractive.
In the long run a company that produces and sells candy bars incurs total costs of $1,200 when output is 2,400 candy bars and $1,400 when output is 2,900 candy bars. The candy bar company exhibits
. economies of scale because average total cost is falling as output rises.
If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will
. exactly triple.
Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly
. is often not in the best interest of society.
The ability of firms to enter and exit a market over time means that, in the long run,
. the supply curve is more elastic.
Which of the following can be added to profit to obtain total revenue?
. total cost
Without government intervention, public goods tend to be
. underproduced and common resources tend to be overconsumed.
What is the shortage amount of hotel rooms after the $110 price floor?
0
What is the shortage amount of hotel rooms after the $95 price floor? (Answer 0 if there is no shortage) Answe
0
What is the surplus amount of hotel rooms after the $90 price ceiling? (Answer 0 if there is no surplus)
0
What is the surplus amount of hotel rooms after the $95 price floor?
0
Use the following information to calculate the price elasticity of demand for used iPhones in a town. If price is $400, then the quantity demanded is 10,600. If price is $600, then the quantity demanded is 8,400. As always, use the midpoint method to calculate percentage changes.
0.58
The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90 units. The price elasticity of demand is
1/2.
Find the marginal seller's cost (WTP) at Q = 5 referring to the graph below.
10
What is the incidence of the $30 tax on buyers? Answer =
10
You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game?
10
Referring to the figure, what is the socially-optimal quantity of output in this market?
10 uni
Calculate the (total) producer surplus for P = $20 referring to the same graph.Answer = $
100
How many hotel rooms are demanded after the $95 price floor? Answer =
100
How many hotel rooms are supplied after the $95 price floor? Answer =
100
The market for hotel rooms is in equilibrium as in the same graph. Determine the effects of a $95 price floor.What is the new equilibrium price after the $95 price floor? Answer =
100
How many hotel rooms are supplied after the $110 price floor? Answer
110
The market for hotel rooms is in equilibrium as in the same graph. Determine the effects of a $110 price floor.What is the new equilibrium price after the $110 price floor? Answer
110
What is the (effective) price that buyers pay (PB) after the $30 tax? Answe
110
Referring to the table, what is the value of K?
110TC=FC+VC, so VC=TC-FC=$270-$50=$220 at Q=2. Therefore, at Q=2, AVC=$220/2=$110.
Calculate the (total) consumer surplus for P = $25 referring to the same graph
112.5
Referring to the table, what is Bill's economic profit at the profit-maximizing output level?
115
How many hotel rooms are demanded after the $90 price ceiling? Answer
120
What is the (effective) price that buyers pay (PB) after the $60 tax? Answer
120
Referring to the figure, the socially optimal quantity of output is
120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit.
What is the deadweight loss with a $100 tax per ticket? Answer
1250
Suppose a firm operating in a competitive market has the following cost curves:Referring to the figure, if the market price is $10 in this perfectly competitive market, what is the firm's short-run economic profit?
15
Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product?
15 bouquets
The hypothetical market for gasoline is depicted in the graph below where market equilibrium quantity is 25 gallons and market equilibrium price is $2.50. Assume that there was an external cost of $2 per gallon (value of the harm from smog and greenhouse gases). What would be the socially optimal quantity of gasoline consumption considering the effect of this external cost?
15 gallons
Referring to the graph below, what are the monopolist's profit-maximizing price and output level?
16.50; Q = 40
What is the total surplus with a $100 tax per ticket? Answer
18750
Table 5-1 shows the supply and demand for socks. If a price floor of $10 per pair is imposed by the government, the number of pairs actually purchased will be
2 pairs
How much of a tax per gallon would make the market equilibrium outcome be equal to the socially optimal equilibrium?
2 per gallon
How much of a subsidy per shot would make the market equilibrium outcome be equal to the socially optimal equilibrium
20
What is the incidence of the $30 tax on sellers? Answer
20
What is the incidence of the $60 tax on buyers? Answer =
20
Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit
20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.
The market for airplane tickets is in equilibrium as in the graph with the equilibrium price of $200 and equilibrium quantity of 100 tickets.What is the total surplus without a tax? Answer
20000
What is the shortage amount of hotel rooms after the $90 price ceiling?
30
What is the surplus amount of hotel rooms after the $110 price floor? (Answer 0 if there is no surplus) Answer =
30
The hypothetical market for flu shots is depicted in the graph below where market equilibrium quantity is 20 flu shots and market equilibrium price is $20 per shot. Assume that there was an external benefit of $20 per flu shot (value of the flu shot by an individual that accrues to bystanders). What would be the socially optimal quantity of flu shots considering the effect of this external benefit?
30 flu shots
Find the marginal buyer's willingness to pay (WTP) at Q = 5 referring to the graph below.Answer = $
35
Table 5-1 shows the supply and demand for socks. If a price ceiling of $4 per pair is imposed by the government, the number of pairs actually purchased will be
4 pairs
Referring to Table 6-2, the equilibrium price is
4.00.
What is the incidence of the $60 tax on sellers? Answer =
40
Calculate the (total) producer surplus for P = $40 referring to the same graph.Answer = $
400
Referring to Table 6-1, if the price of the product is $122, then the total consumer surplus is
41
Referring to the graph below, the monopolist earns a profit of:
420.
Referring to the figure, the vertical distance between points A and B represents a tax in the market. The amount of the tax on each unit of the good is
5
Calculate the (total) consumer surplus for P = $30 referring to the same graph.Answer = $
50
7 What is the consumer surplus with a $100 tax per ticket? Answer
5625
Referring to the table, at what quantity does Bill maximize profits?
6
Table 5-1 shows the supply and demand for socks. If a price ceiling of $10 per pair is imposed by the government, the number of pairs actually purchased will be
6 pairs
The market for hotel rooms is in equilibrium as in the graph for question 1 with the equilibrium price of $100 and equilibrium quantity of 100 hotel rooms. Suppose the government imposes a tax on buyers of $60 per room.What is the new equilibrium quantity of hotel rooms after the $60 tax? Answer
60
Referring to the table, what is the marginal cost of the 5th unit?Bill's Birdhouses COSTS REVENUES QuantityProduced TotalCost MarginalCost QuantityDemanded Price TotalRevenue MarginalRevenue 0 $0 -- 0 $80 -- 1 $50 1 $80 2 $102 2 $80 3 $157 3 $80 4 $217 4 $80 5 $285 5 $80 6 $365 6 $80 7 $462 7 $80 8 $582 8 $80
68
Referring to the diagram, suppose a $3 per-unit tax is placed on this good starting from an initial market equilibrium with no tax. The amount of deadweight loss resulting from this tax is
7.50
Referring to the graph, if the equilibrium price is $200, what is the producer surplus?
7500
What is the tax revenue with a $100 tax per ticket? Answer
7500
How many hotel rooms are demanded after the $110 price floor? Answer
80
The market for hotel rooms is in equilibrium as in the graph with the equilibrium price of $100 and equilibrium quantity of 100 hotel rooms. Suppose the government imposes a tax on buyers of $30 per room.What is the new equilibrium quantity of hotel rooms after the $30 tax? Answ
80
What is the (effective) price that sellers receive (PS) after the $30 tax? Answer =
80
How many hotel rooms are supplied after the $90 price ceiling? Answer
90
The market for hotel rooms is in equilibrium as in the graph. Determine the effects of a $90 price ceiling.What is the new equilibrium price after the $90 price ceiling? Answer
90
Acme and US Electric run coal-burning power plants. Each company emits 40 tons of sulfur dioxide (SO2) per month with the total emissions being equal to 80 tons/month. Assume that the cost of reducing emissions is $80/ton for Acme and $160/ton for US Electric.Now suppose the goal of the policymakers is to reduce the SO2 emissions by 25%, to 60 tons/month and they enact the following tradable permits policy: Issue 60 permits, where each permit allows one ton SO2 emissions. Give 30 permits to each firm and establish a market for trading permits. Each firm may use all its permits to emit 30 tons; or it may emit less than 30 tons and sell the leftover permits; or it may purchase extra permits to emit more than 30 tons.Compute the cost of achieving the goal with this policy if Acme uses 20 permits and sells 10 to USE for 120 each
A 500 USE 1500 When Acme uses 20 permits, it means it has reduced its SO2 emissions from 40 to 20 tons which will cost 20 times $80/ton, a total of $1600. Then, when it sells 10 permits to US Electric for $120 each, it makes $1200.In sum, the net cost to Acme of the tradable pollution permits policy is $1600 minus $1200 equal to $400 only. Under regulation policy, the cost was $800 so Acme saves $400 with cap and trade.When US Electric purchases 10 permits from Acme for $120 each, it costs $1200. It then uses these 10 permits plus the original 30 to emit 40 tons of SO2. In other words, it does not spend anything on reducing its own emissions. The overall net cost to US Electric of the tradable pollution permits policy is, therefore, $1200. Under regulation policy, the cost was $1600 so US Electric also saves $400 with cap and trade.
Would the deadweight loss (DWL) of a tax be larger if the tax were on hotel rooms in the short run or hotel rooms in the long run?
A. Hotel rooms in the long run.
Acme and US Electric run coal-burning power plants. Each company emits 40 tons of sulfur dioxide (SO2) per month with the total emissions being equal to 80 tons/month. Assume that the cost of reducing emissions is $80/ton for Acme and $160/ton for US Electric.Now suppose the goal of the policymakers is to reduce the SO2 emissions by 25%, to 60 tons/month and they enact a regulation policy requiring each firm to cut its emissions by 25% (10 tons each). Compute the cost of achieving the goal with this policy for Acme and US Electric.
ACME 800 US ELEC 1600
Suppose buyers of fountain drinks are required to send $0.50 to the government for every fountain drink they buy. Further, suppose this tax causes the effective price received by sellers of fountain drinks to fall by $0.20 per drink. Which of the following statements is correct?
All of the above are correct
Total surplus
All of the above are correct.
When a tax is placed on the sellers of a product, the
All of the above are correct.
Which of the following is an example of price discrimination?
All of the above are correct.
In the long-run equilibrium in a competitive market, the marginal firm has
All of the choices are correct.
London started charging a fee to drive in certain parts of the city during peak traffic times. This fee was imposed to address the problem of traffic congestion. It has reduced congestion where it has been applied. This fee has:
Answers (a), (b), and (c) are true.
Which of the following statements is correct?
Assuming that implicit costs are positive, accounting profit is greater than economic profit.
Referring to the table, over which range of output is average revenue equal to price?
Average revenue is equal to price over the entire range of output.TR=PxQ and AR=TR/Q. Since price is constant, AR=(PxQ)/Q=P.
Which of the following is a characteristic of a natural monopoly?
Average total cost declines over large regions of output.
Referring to the graph, which area represents producer surplus when the price is P1?
BCG
The equilibrium rent on office space has just increased by $500/month. Determine the effects on accounting profit and economic profit if you rent your office space.
Both a and b.
The supply of beachfront property is inelastic. The supply of new cars is elastic. Suppose population growth causes demand for both goods to double (at each price, quantity demanded doubles). Will the impact on equilibrium price or equilibrium quantity be bigger for each product?
Both a and d.
Which of the following statements is correct about a market in which pollution is emitted?
Both corrective taxes and pollution permits move the market toward the social optimum.
Which of the following statements is correct?
Buyers always want to pay less and sellers always want to be paid more.
Referring to Table 6-1, if the price of the product is $110, then who would be willing to purchase the product?
Calvin, Sam, and Andrew
An uncongested toll road is which of the four kinds of goods?
Club good
A congested non-toll road is which of the four kinds of goods?
Common resource
Antitrust laws may
D. restrict the ability of firms to merge.
Entry into a market by new firms will increase the
D. supply of the good.
The buyers will bear a higher share of the tax burden than sellers if the demand is
D2, and the supply is S2. 15 7
Tom produces commemorative t-shirts in a competitive market. If Tom decides to decrease his output, this will
Decrease his revenue, since his output has decreased and the pr
Junk food has been criticized for being unhealthy and too cheap, enticing the poor to adopt unhealthy lifestyles. Suppose that the state of Oklahansas imposes a tax on junk food. What has to be true for the tax to actually deter the most people from eating junk food: Should junk food demand be elastic or should it be inelastic?
Demand should be elastic.
The distinction between efficiency and equality can be described as follows:
Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
What is the effect of a fall in the price of music CDs on the equilibrium price and quantity of music downloads?
Equilibrium price and quantity both fall.
If garden gnomes regain popularity, what will happen to the equilibrium price and quantity of garden gnomes?
Equilibrium price and quantity both rise.
If sellers of music downloads negotiate a reduction in the royalties they must pay for each song they sell and the price of music CDs falls, what is the effect on the equilibrium price of music downloads?
Equilibrium price falls
As airlines increase the number of premium seats for sale (all else equal), what happens to the equilibrium price and quantity of premium seat tickets?
Equilibrium price falls and equilibrium quantity rises.
If sellers of music downloads negotiate a reduction in the royalties they must pay for each song they sell, what is the effect on the equilibrium price and quantity of music downloads?
Equilibrium price falls and equilibrium quantity rises.
Which of the following is not a characteristic of a perfectly co
Firms have difficulty entering the market
Which of the following will cause an increase in the demand for autos?
Gasoline prices drop by 50% when OPEC nations increase production.
The demand curve for cookies is downward-sloping. When the price of cookies is $2, the quantity demanded is 100. If the price rises to $3, what happens to consumer surplus?
It falls by less than $100.
The rise of the Internet and file sharing has turned media such as movies and music into public goods. How?
It has made those goods nonexcludable.
Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that
Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm
Referring to the figure, what price will the monopolist charge?
K
Referring to the table, over what range of output is marginal revenue declining?
Marginal revenue is constant over the entire range of output.
In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure: Which of the following is a point on the long-run supply curve?
P=$5, Q=1,500.
If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?
Prices and quantities both rise.
A congested toll road is which of the four kinds of goods?
Private good
An uncongested non-toll road is which of the four kinds of goods?
Public good
Homeowners near Middletown University's stadium used to rent parking spaces in their driveways to fans at a going rate of $11. A new town ordinance now sets a maximum parking fee of $7. Given the new price of $7, some fans who used to carpool drive to the game alone because of the lower price of parking. This causes
Quantity demanded to increase along the demand curve.
Homeowners near Middletown University's stadium used to rent parking spaces in their driveways to fans at a going rate of $11. A new town ordinance now sets a maximum parking fee of $7. Given the new price of $7, some homeowners now think it's not worth the hassle to rent out spaces. This causes
Quantity to decrease along the supply curve.
As a result of a fare war, the price of a luxury cruise falls by 20%. Does luxury cruise companies' total revenue rise or fall?
Rises
If pharmacies raise the price of insulin by 10%, does total expenditure on insulin rise or fall?
Rises
Homeowners near Middletown University's stadium used to rent parking spaces in their driveways to fans at a going rate of $11. A new town ordinance now sets a maximum parking fee of $7. Given the new price of $7, some homeowners now think it's not worth the hassle to rent out spaces AND some fans who used to carpool drive to the game alone because of the lower price of parking. This causes
Shortage of parking spaces.
Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?
The demand curve shifts to the right.
Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?
The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.
On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?
The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
Which of the following is not a reason why government agencies subsidize basic research?
The government wants to attract the brightest researchers away from private research firms.
Suppose a local bookstore notices that a 2 percent increase in book prices leads to a 2 percent decrease in the number of books sold. Which of the following is true
The store's sales revenue did not change.
Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?
They are equal.
For a firm operating in a competitive industry, which of the following statements is not correct?
Total revenue is constant.
Which of the following is an example of public ownership of a monopoly?
U.S. Postal Service
Under which of the following scenarios would a park be considered a common resource?
Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.
If a tax shifts the supply curve downward (or to the right), we can infer that the tax was levied on
We cannot infer anything because the shift described is not consistent with a tax.
eferring to the information in the table below for a small company, please answer the following questions.(Q: Quantity Produced, VC: Variable Cost, TC: Total Cost, AFC: Average Fixed Cost, AVC: Average Variable Cost, ATC: Average Total Cost, MC: Marginal Cost)
What is the fixed cost of production? Answer = $ 50What is the VC at Q=3? Answer = $ 60What is the ATC at Q=5? Answer = $ 40What is the AVC at Q=4? Answer = $ 25What is the MC of increasing production from Q=3 to Q=4? Answer = $ 40
Procter & Gamble Co. is a major soap producer. All of the following, except one, would shift its supply curve of liquid soap to left. Which is the exception?
a decrease in the price of liquid soap
An increase in the price of a particular good, with all other variables constant, causes
a movement along a given supply curve to a higher quantity supplied
A life-saving medicine without any close substitutes will tend to have
a small elasticity of demand (i.e. more inelastic).
When the government imposes a binding price floor, it causes
a surplus of the good to develop.
In the transition from the short run to the long run, the number of firms in a competitive industry is
able to adjust to market conditions.
Monopolies are socially inefficient because the price they charge is
above marginal cost.
If the production of a good yields a negative externality, then the social-cost curve lies ______ the supply curve, and the socially optimal quantity is ______ than the market equilibrium quantity.
above, less
Which of the following could lead to an increase in the equilibrium quantity of a good?
an increase in demand and an increase in supply
Which of the following would NOT cause the demand curve for college football tickets to shift?
an increase in the price of college football tickets
Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?
an increase in the price of grapes, an input into jelly
Which of the following would shift the demand curve for new college textbooks to the right?
an increase in the price of used college textbooks
If a firm produces nothing, which of the following costs will be zero?
ariable cost
The Tragedy of the Commons for sheep grazing on common land can be eliminated by the government doing each of the following except
assigning land property rights.
A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000 at 400 units of output,
average total cost is 50 cents.We are told that at Q=400, TC=$1200 and VC=$1000 so FC=TC-VC=$200. As a result, AFC=$200/400=$0.50
When a firm is operating at an efficient scale,
average total cost is minimized.
Whenever marginal cost is greater than average total cost,
average total cost is rising.
At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the
average total cost of 21 pairs of boots is $23.
Referring to the figure, suppose a tax of $5 per unit is imposed on this market. What will be the new equilibrium quantity in this market?
between 25 units and 50 units
The idea that "externalities arise because something of value has no price attached to it" is associated with
both public goods and common resources.
Bob owns 5 acres of land. Bob sells the land to a real estate developer who builds a subdivision with 10 houses. The land is an example of a good that is
both rival in consumption and excludable.
Because natural monopolies have a declining average cost curve, regulating natural monopolies by setting price equal to marginal cost would
cause the monopolist to operate at a loss.
The equilibrium rent on office space has just increased by $500/month. Determine the effects on accounting profit and economic profit if you own your office space.
conomic profit falls by $500/month.
An efficient allocation of resources maximizes
consumer surplus plus producer surplus.
A price floor on corn would have the effect of
creating a surplus supply when the floor is above the equilibrium price
Private markets fail to account for externalities because
decisionmakers in the market fail to include the costs of their behavior to third parties
Referring to the figure, the vertical distance between points A and B represents a tax in the market. As compared to the initial market equilibrium with no tax, the imposition of the tax causes the quantity sold to
decrease by 1 unit.
If the government removes a tax on a good, then the price paid by buyers will
decrease, and the price received by sellers will increase.
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
decreasing output would increase the firm's profit
A local store noticed that when it increased the price of milk from $2.50 to $3.50 per gallon, it sold the same amount of milk per week (165 gallons). Since everything else remained the same, we would say the
demand for milk is perfectly inelastic
Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the
demand is more inelastic than the supply.
If the total cost curve gets steeper as output increases, the firm is experiencing
diminishing marginal product.
When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing
diminishing marginal product.
When the marginal product of an input declines as the quantity of that input increases, the production function exhibits
diminishing marginal product.
In the long run a company that produces and sells organic tofu incurs total costs of $1,200 when output is 1,200 units and $1,650 when output is 1,400 units. The tofu company exhibits
diseconomies of scale because average total cost is rising as output rises.ATC=$1,200/1,200=$1 at Q=1,200. ATC=$1,650/1,400=$1.18 at Q=1,400. The tofu company exhibits diseconomies of scale because average total cost is rising as output rises.
Four friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. A Tragedy of the Commons problem is likely for each of the following reasons except
each dish would be both excludable and rival in consumption.
An example of an explicit cost of production would be the
ease payments for the land on which a firm's factory stands.
A monopolist's average revenue is always
equal to the price of its product.
Who probably has more elastic demand for a Hertz rental car? Person A reserves a car online weeks before a trip; person B walks up to a Hertz counter after he walks off an airplane after a four-hour flight? Who probably gets charged more?
erson A has a more elastic demand and will be charged less.
In a competitive market, when price is below the equilibrium level, the price will be driven upward due to
excess demand (shortage)
Referring to the figure, when price rises from P2 to P3, the firm finds that
expanding output to Q4 would leave the firm with losses.
If Holly's demand for fast food decreases as her income rises, then
fast food is an inferior good for her
Some costs do not vary with the quantity of output produced. Those costs are called
fixed costs.
Competitive markets are characterized by
free entry and exit by firms.
In a competitive market with identical firms
free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.
Consumer surplus is
he amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
If the quantity of higher education demanded rises by 5 percent when incomes rise by 10 percent,
higher education is a normal good
When a market is in equilibrium, the buyers are those with the _________ willingness to pay and the sellers are those with the __________ costs.
highest, lowest
In the short run, a firm that produces and sells house paint can adjust
how many workers to hire.
Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's
implicit costs.
Referring to the figure, if the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would
impose a tax of $4 per unit.
Referring to the table, if the firm doubles its output from 3 to 6 units, total revenue will
increase by exactly $15.
In a market with a binding price ceiling, an increase in the ceiling will ____________ the quantity supplied, ____________ the quantity demanded, and reduce the ____________.
increase, decrease, shortage
If the government removes a tax on a good, then the quantity of the good sold w
increase.
When the price of petroleum goes up, the demand for natural gas ______, the demand for coal ______, and the demand for solar power ______. (Assume these goods are substitutes for petroleum.)
increases; increases; increases
A linear, downward-sloping demand curve is
inelastic at some points, and elastic at others.
A firm has market power if it can
influence the market price of the good it sells.
Price discrimination
is an attempt by a monopoly to increase its profit by selling the same good to different customers at different prices.
In order to sell more of its product, a monopolist must
lower its price.
A public university knows that demand from potential students is elastic. If the university wants to increase tuition revenue, it should
lower its tuition rate
When Brenda was in college, she worked part-time delivering pizzas and she ate five boxes of macaroni and cheese per week. After graduation, she became a high school teacher and ate only two boxes of macaroni and cheese per week. From this information,
macaroni and cheese seems to be an inferior good for Brenda
The monopolist's profit-maximizing quantity of output is determined by the intersection of which of the following two curves?
marginal cost and marginal revenue
In the short-run, a firm's supply curve is equal to the
marginal cost curve above its average variable cost curve.
When a firm's only variable input is labor, then the slope of the production function measures the
marginal product of labor.
Market power and externalities are examples of
market failure.
Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run
more firms will enter the market.
When a tax is placed on the sellers of cell phones, the size of the cell phone mark
nd the effective price received by sellers both decrease.
When profit-maximizing firms in competitive markets are earning profits,
new firms will enter the market.
At the local park there is a playground that anyone may use. There is rarely anyone using the playground, so children who use the playground receive full enjoyment from its use. The playground is
not rival in consumption nor is it excludable.
University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?
offer grants to university researchers
Referring to the figure, as the number of workers increases,
otal output increases but at a decreasing rate.
Suppose a monopolist is able to charge each customer a price equal to that customer's willingness-to-pay for the product. Then the monopolist is engaging in
perfect price discrimination.
Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is
positive but less than the marginal seller's cost.
The law of demand says that
price and quantity demanded are inversely related
If the supply of coffee falls due to bad weather conditions in coffee-exporting countries, then the
price will rise and quantity will fall
Which categories of goods are excludable?
private goods and club goods
Which categories of goods are rival in consumption?
private goods and common resources
The amount of a good or service that buyers would be willing and able to purchase at a specific price is known as
quantity demanded
If automobiles are like most goods and the price of automobiles rises, then holding all else constant, the
quantity demanded of automobiles will fall
The deadweight loss that arises from a monopoly is a consequence of the fact that the monopoly
quantity is lower than the socially-optimal quantity.
For a firm, the production function represents the relationship between
quantity of inputs and quantity of output.
A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price rises to $14, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its
quantity of output is higher than it was previously.
The government provides public goods because
ree-riders make it difficult for private markets to supply the socially optimal quantity.
The price elasticity of demand measures the
responsiveness of quantity demanded to a change in a good's price
A supply curve can be used to measure producer surplus because it reflects
sellers' costs.
Which of the following represents the firm's short-run condition for shutting down?
shut down if TR < VC
Each of the following would be considered a common resource except a
streetlight.
In a market with 1,000 identical firms, the short-run market supply is the
sum of the quantities supplied by each of the 1,000 individual firms at each pricE
When a good is taxed, the burden of the tax falls mainly on consumers i
supply is elastic, and demand is inelastic
The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price.
supply, lower
An increase in ________ will cause a movement along a given demand curve, which is called a change in ________.
supply, quantity demanded
Consumers in Mayville consider houses and apartments to be substitutes. There is an increase in the price of houses in Mayville at the same time three new apartment buildings open there. In the market for apartments in Mayville, we can for sure say that:
the equilibrium quantity will rise.
The supply of a good is more price elastic,
the longer the time horizon over which it is measured
The price elasticity of demand is
the percentage change in quantity demanded divided by the percentage change in price
A change in which of the following will NOT shift the demand curve for hamburgers?
the price of hamburgers
Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing
the quantity at which market price is equal to Mr. McDonald's marginal c
The cross-price elasticity of demand measures
the responsiveness of the quantity demanded of one good to changes in the price of another good
If the cross-price elasticity of demand between two goods is negative, then
the two goods are complements
Which of the following problems can NOT be alleviated by a gasoline tax?
the undersupply of goods that produce positive externalities
Governments can grant private property rights over resources that were previously viewed as public, such as fish or elephants. Why would governments want to do so?
to prevent overuse
Which of the following is not a way for the government to solve the problem of excessive use of common resources?
turning the common resource into a public good
Price floors and price ceilings
usually result from government intervention
Tradable pollution permits
will be more valuable to firms that can reduce pollution only at high costs.
The maximum price that a buyer will pay for a good is called
willingness to pay.
