Econ 202 Final Exam Practice

48. If the monopoly firm is not allowed to price discriminate and can only charge one price for all units sold, then the maximized profit is a. $0 b. $1,562.50 c. $3,125 d. $6,250

a. $0

49. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to a. $0 b. $1,562.50 c. $3,125 d. $6,250

a. $0

50. If the monopoly firm perfectly price discriminates, then the deadweight loss amounts to a. $0 b. $1,562.50 c. $3,125 d. $6,250

a. $0

1. Which of the following price floors would be binding in this market? a. $12 b. $10 c. $8 d. $4

a. $12

39. Diminishing marginal product suggests that a. Additional units of output become less costly as more output is produced. b. Marginal cost is upward sloping. c. The firm is at full capacity. d. Adding additional workers will lower total cost.

a. Additional units of output become less costly as more output is produced.

15. Which area represents producer surplus when the price is P1? a. BCG b. ACH c. ABGD d. DGH

a. BCG

8. How is the burden of the tax shared between buyers and sellers (in terms of effective taxes paid)? a. Buyers share more of the tax burden. b. Sellers share more of the tax burden. c. Buyers and sellers share the same tax burden. d. All of the above are not correct.

a. Buyers share more of the tax burden.

44. The shape of the average total cost curve in the figure suggests an opportunity for a profit-maximizing monopolist to take advantage of a. Economies of scale. b. Diseconomies of scale. c. Diminishing marginal product. d. Increasing marginal cost.

a. Economies of scale.

3. If the government imposes a price floor of $8 on this market, then there will be a. No surplus b. A surplus of 20 units c. A surplus of 30 units d. A surplus of 40 units

a. No surplus

36. When a good is rival in consumption, a. One person's use of the good diminishes another person's ability to use it. b. People can be prevented from using the good. c. An unlimited number of people can use the good at the same time. d. Everyone will be excluded from obtaining the good.

a. One person's use of the good diminishes another person's ability to use it.

35. Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to a. Pay your roommate at least $25 but no more than $50 to clean up after herself. b. Pay your roommate at least $51 to clean up after herself. c. Charge your roommate at least $25 to have you clean up after her. d. Charge your roommate at least $50 but not more than $100 to keep you from complaining about the mess.

a. Pay your roommate at least $25 but no more than $50 to clean up after herself.

28. An externality a. Results in an equilibrium that does not maximize the total benefits to society. b. Causes demand to exceed supply. c. Strengthens the role of the "invisible hand" in the marketplace. d. Affects buyers but not sellers.

a. Results in an equilibrium that does not maximize the total benefits to society.

31. If 250 units of plastic are produced and consumed, then the a. Social optimum has been reached. b. Market equilibrium has been reached. c. Negative externality associated with plastics has been eliminated. d. Positive externality associated with plastics has been eliminated.

a. Social optimum has been reached.

40. If the market price is $10, what is the firm's short-run economic profit? a. $9 b. $15 c. $30 d. $50

b. $15

21. What can we say about the willingness to pay (WTP) for consumers in Group 3? a. WTP > $20 b. $17 < WTP < $20 c. $80 < WTP < $100 d. WTP > $120

b. $17 < WTP < $20

7. The effective tax per unit sellers pay is a. $6 b. $4 c. $3 d. $1

b. $4

41. The firm will earn zero economic profit if the market price is a. $0 b. $6 c. $7 d. $10

b. $6

22. The efficient quantity is a. 80 b. 100 c. 120 d. Additional information is needed.

b. 100

46. To maximize its profit, a monopolist would choose which of the following outcomes? a. 100 units of output and a price of $10 per unit b. 100 units of output and a price of $20 per unit c. 150 units of output and a price of $15 per unit d. 200 units of output and a price of $20 per unit

b. 100 units of output and a price of $20 per unit

11. What is the market equilibrium quantity after the tax is imposed? a. 80 b. 105 c. 120 d. 40

b. 105

47. What is the efficient quantity? a. 100 b. 150 c. 200 d. All of the above are not correct.

b. 150

16. Which area represents producer surplus when the price is P2? a. BCG b. ACH c. ABGD d. AHGB

b. ACH

29. Each unit of plastics that is produced results in an external a. Cost of $6 b. Cost of $8 c. Benefit of $6 d. Benefit of $8

b. Cost of $8

43. When new firms have an incentive to leave a competitive market, their exit will a. Increase the price of the product b. Drive down profits of existing firms in the market. c. Shift the market supply curve to the right. d. Increase demand for the product.

b. Drive down profits of existing firms in the market.

24. If 120 units are produced and consumed, what is the deadweight loss? a. E+F b. G+H c. E+F+G+H d. There is no deadweight loss.

b. G+H

13. If the price of the product is $22, then who would be willing to purchase the product? a. Lori b. Lori and Audrey c. Lori, Audrey, and Zach d. Lori, Audrey, Zach, and Calvin

b. Lori and Audrey

45. Considering the relationship between average total cost and marginal cost, the marginal cost curve for this firm a. Must lie entirely above the average total cost curve. b. Must lie entirely below the average total cost curve. c. Must be upward sloping. d. Does not exist.

b. Must lie entirely below the average total cost curve.

42. When existing firms in a competitive market are profitable, an incentive exists for a. New firms to seek government subsidies that would allow them to enter the market. b. New firms to enter the market. c. Existing firms to raise prices. d. Existing firms to increase production.

b. New firms to enter the market.

34. When the government does not know the demand curve accurately, which policy is easier to be implemented in order to obtain the pre-determined optimal level of pollution? a. Corrective tax. b. Pollution permit. c. Either corrective tax or pollution permit. d. Additional information is required to answer this question.

b. Pollution permit.

27. An externality is a. The costs that parties incur in the process of agreeing and following through a bargain. b. The uncompensated impact of one person's actions on the well-being of a bystander c. The proposition that private parties can bargain without cost over the allocation of resources. d. A market equilibrium tax.

b. The uncompensated impact of one person's actions on the well-being of a bystander

5. The government directly collects taxes from a. Buyers b. Sellers c. Both buyers and sellers d. Additional information is needed

b. sellers

2. Under the binding price ceiling of 56, what would be the black market price? a. $10 b. $12 c. $14 d. $16

c. $14

10. What is the deadweight loss due to this tax? a. $60 b. $40 c. $30 d. $20

c. $30

9. How much tax revenue does the government collect from the tax on this good? a. $210 b. $345 c. $420 d. $480

c. $420

14. If the price of the product is $18, then the total consumer surplus is a. $38 b. $42 c. $46 d. $72

c. $46

23. If 80 units are produced and consumed, what is the total surplus? a. A+B+E b. C+D+F c. A+B+C+D d. A+B+C+D+E+F

c. A+B+C+D

20. At the market equilibrium price, consumer surplus is a. A b. A+B c. A+B+E d. A+B+E+G

c. A+B+E

19. Which area represents the increase in producer surplus when the price rises from P1 to P2 due to new producers entering the market? a. BCG b. ACH c. DGH d. AHGB

c. DGH

30. In order to reach the social optimum, the government could a. Impose a tax of $2 per unit on plastics. b. Impose a tax of $6 per unit on plastics. c. Impose a tax of $8 per unit on plastics. d. Offer a subsidy of $6 per unit on plastics.

c. Impose a tax of $8 per unit on plastics.

26. When a country is on the upward-sloping side of the Laffer curves, an increase in the tax rate will a. Decrease tax revenue and decrease the deadweight loss. b. Decrease tax revenue and increase the deadweight loss. c. Increase tax revenue and decrease the deadweight loss. d. Impose a tax of $2 per unit on plastics.

c. Increase tax revenue and decrease the deadweight loss.

12. If the price of the product is $15, then who would be willing to purchase the product? a. Lori b. Lori and Audrey c. Lori, Audrey, and Zach d. Lori, Audrey, Zach, and Calvin

c. Lori, Audrey, and Zach

6. The price that buyers pay after the tax is imposed is a. $8 b. $9 c. $10.5 d. $12

d. $12

32. If the government imposed a corrective tax that successfully moved the market from the market equilibrium to the social optimum, then tax revenue for the government would amount to a. $1,250 b. $1,600 c. $2,000 d. $2,500

d. $2,500

4. What is the amount of the tax per unit? a. $1 b. $2 c. $3 d. $4

d. $4

38. The marginal profit of the sixth worker is a. 1,000 units b. 900 units c. 700 units d. 100 units

d. 100 units

18. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers ("old" producers who were in the market when the price was P1)? a. BCG b. ACH c. DGH d. ABGD

d. ABGD

17. Which area represents the increase in producer surplus when the price rises from P1 to P2? a. BCG b. ACH c. ABGD d. AHGB

d. AHGB

33. The supply of pollution permits is a. Elastic and represented by line A. b. Inelastic and represented by line A. c. Elastic and represented by line F. d. Inelastic and represented by line F.

d. Inelastic and represented by line F.

25. The deadweight loss from a tax of $10 per unit will be the largest in a market with a. Elastic demand and elastic supply. b. Elastic demand and inelastic supply. c. Inelastic demand and elastic supply. d. Inelastic demand and inelastic supply.

d. Inelastic demand and inelastic supply.

37. A streetlight is a a. Private good. b. Club good. c. Common resource. d. Public good.

d. Public good.