ECON 2302 EXAM #3: (Ch 9-13)

Quantity Private Value Private Cost External Cost 1 $46 $21 $6 2 $44 $24 $6 3 $42 $27 $6 4 $40 $30 $6 5 $38 $33 $6 6 $36 $36 $6 7 $34 $39 $6 Refer to Table 10-4. Taking into account private and external costs, total surplus in the market equilibrium amounts to A. $39. B. $45. C. $51. D. $28.

A. $39.

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 A. $32,500. B. $7,500. C. $67,500. D. $25,000.

B. $7,500.

Figure 9-25 The following diagram shows the domestic demand and supply in a market. Assume that the world price in this market is $10 per unit. Refer to Figure 9-25. Suppose the government imposes a tariff of $5 per unit. With trade and a tariff, total surplus is A. $1,900. B. $1,800. C. $1,700. D. $2,000.

A. $1,900.

# Workers / Output / FC / VC / Total Cost 0 0 $50 $0 $50 1 90 $50 $20 $70 2 170 $50 $40 $90 3 230 $50 $60 $110 4 240 $50 $80 $130 Refer to Table 13-3. At which number of workers does diminishing marginal product begin? A. 2 B. 3 C. 1 D. 4

A. 2

Scenario 9-2 • For a small country called Boxland, the equation of the domestic demand curve for cardboard is (Q^d=200−2P), where (Q^d) represents the domestic quantity of cardboard demanded, in tons, and (P) represents the price of a ton of cardboard. • For Boxland, the equation of the domestic supply curve for cardboard is (Q^s=-60+3P) , where (Q^s) represents the domestic quantity of cardboard supplied, in tons, and (P) again represents the price of a ton of cardboard. Refer to Scenario 9-2. Suppose the world price of cardboard is $60. Then, relative to the no-trade situation, international trade in cardboard produces which of the following results for Boxland? A. It decreases consumer surplus, increases producer surplus, and increases total surplus. B. It increases consumer surplus, increases producer surplus, and increases total surplus. C. It decreases consumer surplus, increases producer surplus, and decreases total surplus. D. It decreases consumer surplus, decreases producer surplus, and decreases total surplus.

A. It decreases consumer surplus, increases producer surplus, and increases total surplus.

The nation of Farmland forbids international trade. In Farmland, you can exchange 1 pound of beef for 2 pounds of pepper. In other countries, you can exchange 1 pound of beef for 4 pounds of pepper. These facts indicate that A. the price of beef in Farmland exceeds the world price of beef. B. Farmland has a comparative advantage, relative to other countries, in producing beef. C. other countries have an absolute advantage, relative to Farmland, in producing beef. D. if Farmland were to allow trade, it would export pepper.

B. Farmland has a comparative advantage, relative to other countries, in producing beef.

Mike Miller is the town manager of Medfield, a town with 50,000 residents. At a recent town meeting, several citizens proposed building a large public swimming pool in the center of town for all of the residents to enjoy. A survey of all 50,000 residents revealed that the pool would be worth $50 to each of them. The cost to build the swimming pool is $1,000,000. Which of the following is the most efficient option? A. The pool should be built and paid for by the wealthiest ten percent of the residents. B. The pool should be built and paid for by the town government and paid for with a tax on the residents because all residents would benefit from it but some residents would not donate if they were asked. C. The pool should not be built because the social value does not exceed the cost. D. The pool should be built and paid for with donations collected from residents, as these donations should more than cover the cost of the pool.

B. The pool should be built and paid for by the town government and paid for with a tax on the residents because all residents would benefit from it but some residents would not donate if they were asked.

Table 11-5 A small island off the coast of Cape Cod contains two restaurants and two retail stores. Tourists need to take a ferry boat to reach the island, but with a recent slowdown in the economy, tourists are less willing to pay for the boat ride to visit the island. The owners of the restaurants and stores on the island — Restaurants 1 and 2, and Stores A and B — think that if tourists could ride the ferry for free, they would be happy to visit the island, eat and shop. The business owners are considering contributing to a pool of money that will be used to pay for roundtrip ferry service each day. The table represents their willingness to pay, that is, the maximum amount that each business owner is willing to contribute, per day, to pay for each ferry trip. Restaurant 1 Restaurant 2 Store A Store B 1st ferry trip $300 $400 $200 $180 2nd ferry trip 200 350 150 90 3rd ferry trip 100 300 100 30 4th ferry trip 50 250 50 0 Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $750 per day and the 4 business owners have agreed to split the costs of the ferry trips equally. Which business owner(s) would be opposed to having any ferry trips? A. only the owners of Stores A and B and Restaurant 2 B. only the owner of Store B C. only the owners of Stores A and B D. All 4 business owners would be opposed to paying for any ferry trips.

B. only the owner of Store B

Because of the free-rider problem, A. fireworks displays have become increasingly dangerous. B. private markets tend to undersupply public goods. C. poverty has increased. D. the federal government spends too many resources on national defense and not enough resources on medical research.

B. private markets tend to undersupply public goods.

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the A. private benefit equals the social benefit at the private market solution. B. social value exceeds the private value at the private market solution. C. private cost exceeds the social benefit at the private market solution. D. private cost exceeds the private benefit at the private market solution.

B. social value exceeds the private value at the private market solution.

Which of the following quotations illustrates the Tragedy of the Commons? A. "The only difference between the rich and other people is that the rich have more money." B. "Anyone who is not a socialist before he is 30 has no heart; anyone who is still a socialist after he is 30 has no head." C. "What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others." D. "A bird in the hand is worth two in the bush."

C. "What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others."

Scenario 10-1 The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: • a private cost of $3.10; • a social cost of $3.55; • a value to consumers of $3.70. Refer to Scenario 10-1. Suppose the equilibrium quantity of gasoline is 1,150 gallons; that is, QMARKET = 1,150. Then the equilibrium price of a gallon could be A. $3.80. B. $3.00. C. $3.30. D. $2.80.

C. $3.30.

Refer to Figure 13-8. The efficient scale of production occurs at which quantity? A. A B. B C. C D. D

C. C

A city street is A. always a public good, whether or not it is congested. B. always a common resource, whether or not it is congested. C. a public good when it is congested, but it is a common resource when it is not congested. D. a common resource when it is congested, but it is a public good when it is not congested.

D. a common resource when it is congested, but it is a public good when it is not congested.

Refer to Figure 9-17. The deadweight loss caused by the tariff is A. $96. B. $72. C. $24. D. $144.

A. $96.

In which of the following cases is the Coase theorem most likely to solve the externality? A. Ed is allergic to his roommate's cat. B. Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. C. Industrialization around the world is causing global warming. D. Polluted water runoff from farms is making residents of a nearby town sick.

A. Ed is allergic to his roommate's cat.

Refer to Figure 13-5. Curve D intersects curve C A. at the efficient scale. B. where the firm maximizes profit. C. at the minimum of average fixed cost. D. where fixed costs equal variable costs.

A. at the efficient scale.

Corrective taxes differ from most taxes in that corrective taxes A. do not cause deadweight losses. B. do not raise revenue for the government. C. always result in a high burden on sellers of goods to which the corrective tax applies. D. reduce economic efficiency.

A. do not cause deadweight losses.

Refer to Figure 10-9, Panel (c). The market equilibrium quantity is A. Q4, which is the socially optimal quantity. B. Q5, which is the socially optimal quantity. C. Q4, and the socially optimal quantity is Q5. D. Q5, and the socially optimal quantity is Q4.

C. Q4, and the socially optimal quantity is Q5.

Figure 9-1 The figure illustrates the market for coffee in Guatemala. Refer to Figure 9-1. When trade in coffee is allowed, consumer surplus in Guatemala A. decreases by the area B + D. B. increases by the area C + F. C. increases by the area B + D. D. decreases by the area D + G.

A. decreases by the area B + D.

Number of Workers Total Output Marginal Product 0 0 -- 1 30 2 45 3 60 4 50 5 40 Refer to Table 13-1. What is total output when 3 workers are hired? A. 135 B. 15 C. 60 D. 105

A. 135

Figure 9-5 The figure illustrates the market for tricycles in a country. Refer to Figure 9-5. Bearing in mind that this country is "small," which of the following events conceivably could cause the country to switch from being an importer of tricycles to an exporter of tricycles? A. Within this country, the price of a substitute for tricycles decreases. B. Incomes of domestic citizens increase, and tricycles are a normal good. C. Wages increase for domestic workers who produce tricycles. D. Within this country, the price of a complement to tricycles decreases.

A. Within this country, the price of a substitute for tricycles decreases.

Table 11-4 There are four homes along Belmont Circle, which surrounds a small plot of land. The land currently has no trees, and the 4 homeowners -- Adams, Benitez, Chen, and Davis -- are considering the idea of contributing to a pool of money that will be used to plant up to 4 trees. The table represents their willingness to pay, that is, the maximum amount that each homeowner is willing to contribute toward each tree. Adams Benitez Chen Davis First tree $100 $115 $120 $90 Second tree 50 110 110 50 Third tree 20 100 80 30 Fourth tree 10 50 40 0 Refer to Table 11-4. Suppose the cost to plant each tree is $380 and the 4 homeowners have agreed to split all tree-planting costs equally. Which homeowner(s) would be opposed to planting any trees? A. only Davis B. Adams, Benitez, Chen, and Davis C. only Adams, Benitez, and Davis D. only Adams and Davis

A. only Davis

In a cost-benefit analysis, the value of a human life is sometimes calculated on the basis of A. the risks that a person voluntarily exposes herself to in her job and/or recreational choices. B. the amount of resources required to adequately sustain life. C. the value of each individual's assets. D. the belief that human life is priceless.

A. the risks that a person voluntarily exposes herself to in her job and/or recreational choices.

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Refer to Figure 10-13. 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 $8 per unit on plastics. C. impose a tax of $6 per unit on plastics. D. offer a subsidy of $6 per unit on plastics.

B. impose a tax of $8 per unit on plastics.

In many cases the Coase theorem does not work well because A. transaction costs are too low. B. transaction costs are too high. C. there are too few parties at the negotiation table. D. the government does not know about the Coase theorem.

B. transaction costs are too high.

Firm Unit to be eliminated A B C D First unit 54 57 54 62 Second unit 67 68 66 73 Third unit 82 86 82 91 Fourth unit 107 108 107 111 Table 10-5 The following table shows the marginal costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. Refer to Table 10-5. If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal? A. $68 B. $67 C. $83 D. $81

C. $83

# Workers / Output / FC / VC / Total Cost 0 0 $50 $0 $50 1 90 $50 $20 $70 2 170 $50 $40 $90 3 230 $50 $60 $110 4 240 $50 $80 $130 Refer to Table 13-3. The marginal product of the second worker is A. 90 units. B. 85 units. C. 80 units. D. 20 units.

C. 80 units.

Scenario 9-1 The before-trade domestic price of peaches in the United States is $40 per bushel. The world price of peaches is $52 per bushel. The U.S. is a price-taker in the market for peaches. Refer to Scenario 9-1. If trade in peaches is allowed, U.S. producers of peaches A. will experience a decrease in their collective producer surplus. B. will be unaffected. C. will be worse off. D. will be better off.

D. will be better off.

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 the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost? A. $60 B. $100 C. $80 D. $40

A. $60

Figure 9-23 The following diagram shows the domestic demand and domestic supply for a market. Assume that the world price in this market is $120 per unit. Refer to Figure 9-23. Producer surplus with free trade is A. $630. B. $1,080 C. $200. D. $450.

A. $630.

Number of Workers Total Output Marginal Product 0 0 -- 1 300 2 500 3 600 4 650 Refer to Table 13-2. What is the marginal product of the third worker? A. 100 units B. 200 units C. 300 units D. 50 units

A. 100 units

Quantity Private Value Private Cost External Cost 1 $14 $10 $2 2 13 11 2 3 12 12 2 4 11 13 2 5 10 14 2 6 9 15 2 7 8 16 2 Refer to Table 10-1. What is the socially-optimal quantity of output in this market? A. 2 units B. 3 units C. 4 units D. 1 unit

A. 2 units

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? A. 35 bouquets B. 15 bouquets C. 55 bouquets D. 22.5 bouquets

B. 15 bouquets

Table 11-1 Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident's willingness to pay for each acre of the park. Acres Sophia Amber Cedric 1 $10 $24 $6 2 8 18 5 3 6 14 4 4 3 8 3 5 1 6 2 6 0 4 1 7 0 2 0 Refer to Table 11-1. Suppose the cost to build the park is $9 per acre. How large should the park be to maximize total surplus from the park in Springfield? A. 4 acres B. 5 acres C. 3 acres D. 2 acres

B. 5 acres

Figure 9-22 The following diagram shows the domestic demand and domestic supply in a market. In addition, assume that the world price in this market is $40 per unit. Refer to Figure 9-22. Suppose the government imposes a tariff of $20 per unit. Relative to the free-trade outcome, the imposition of the tariff A. decreases imports of the good by 300 units and increases domestic production of the good by 300 units. B. decreases imports of the good by 300 units and increases domestic production of the good by 600 units. C. decreases imports of the good by 600 units and increases domestic production of the good by 300 units. D. decreases imports of the good by 600 units and increases domestic production of the good by 600 units.

C. decreases imports of the good by 600 units and increases domestic production of the good by 300 units.

Rival in Consumption? Yes No Yes A B Excludable? No C D Refer to Figure 11-1. The box labeled A represents A. common resources. B. club goods. C. private goods. D. public goods.

C. private goods.

Which of the following pairs of goods includes a good that is excludable and rival in consumption as well as a good that is not excludable and not rival in consumption? A. congested nontoll road, national defense B. online music subscription, streetlight C. tablet computer, national defense D. tablet computer, gym membership at a gym that always has plenty of open equipment and classes

C. tablet computer, national defense

Figure 9-22 The following diagram shows the domestic demand and domestic supply in a market. In addition, assume that the world price in this market is $40 per unit. Refer to Figure 9-22. With free trade, consumer surplus is A. $18,000 and producer surplus is $12,000. B. $18,000 and producer surplus is $48,000. C. $48,000 and producer surplus is $48,000. D. $108,000 and producer surplus is $12,000.

D. $108,000 and producer surplus is $12,000.

Bubba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for $5 per pound. His average total cost of catching shrimp is $3 per pound. Bubba's annual total profit is A. $20,000. B. $12,000. C. $32,000. D. $8,000.

D. $8,000.