ECON FINAL
Most electric, gas, and water companies are examples of:
natural monopolies
During the winter, Alexa runs a snow-clearing service, and snow-clearing is a perfectly competitive industry, her only fixed cost is $1,000 for a tractor. Her variable costs per cleared lot, shown in the table, include fuel and hot coffee. What is Alexa's shut-down price in the short run?
$15
Jamal is willing to pay $85 for a new jacket that sells for $70. Eddie is willing to pay $65 for that same jacket. What is the total consumer surplus for Jamal and Eddie?
$15
A semiconductor firm is considering opening a new plant. The plant will generate profits of $100 million for each of 3 years after the 1st year of production and then zero profits after that. If the interest rate is 10%, what is the maximum cost (to the nearest million) the firm is willing to pay now for the plant? A.) $100 million B.) $273 million C.) $249 million D.) $300 million
$249 million
Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?
$25
As the manager of a professional football team, you just offered the kicker a two-year contract that pays $2 million per year. The kicker refuses the contract, stating he wants $3 million this year. If you offer $3 million this year, about how much will you have to offer next year to keep the present value of the contract the same as your original offer? Assume a 10% annual interest rate.
$900,000
During the winter, Alexa runs a snow-clearing service, and snow-clearing is a perfectly competitive industry, her only fixed cost is $1,000 for a tractor. Her variable costs per cleared lot, shown in the table, include fuel and hot coffee. If the current price per cleared lot is $14, how many lots should Alexa clear?
0
Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. Based on this data, the price elasticity of demand for gas is: A.) 0.2 B.) 0.5 C.) 5 D.) 2
0.2
A farm can produce 1,000 bushels of wheat per year with two workers or 1,300 bushels of wheat per year with four workers. The marginal product of the fourth worker is _____ bushels.
150
Industry Z is made up of the following firms. One firm makes up 30% of the total market sales, one of the firms makes up 25%, one of the firms makes up 20%, one firm makes up 15%, and the remaining firms make up 10% of the total market sales. What is the HHI for this industry? A.) 2,730 B.) 1,200 C.) 2,160 D.) 100
2,160
A farm can produce 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per year with three workers. The marginal product of the third worker is:
300
(Figure: Cost Curves and Profits, in thousands of bushels) The market for corn is perfectly competitive, and an individual corn farmer faces he cost curves shown in the figure, If the price of a bushel of corn in the market is $12, then the farmer will produce _____ of corn and experience an economic _____ equal to _____. A.) 3000 bushels, loss; $22 per bushel B.) 0 bushels; loss; average fixed costs C.) 3500 bushels; loss; $2 per bushel D.) 5000 bushels; profit; $14 per bushel
3500 bushels; loss; $2 per bushel
Suppose the government of Coffeeland sets coffee prices at $1 per pound, when the market price is $10. The government's actions will:
cause coffee shortages even in a coffee-rich country.
(Figure: Monopolistic Competition III) The figure Monopolistic Competition III shows the demand, marginal revenue, marginal cost, and average total cost curves for Pat's Pizza Parlor, a monopolistic competitor in the food‐to‐go industry. The optimal level of output for Pat's Pizza Parlor is ________ and the profit‐maximizing price is ________. A) 350; $3.50 B) 590; $5.60 C) 350; $7.00 D) 500; $5.50
350; $7.00
Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by:
50%
(Figure: Demand, Revenue, and Cost Curves) The figure shows the demand, marginal revenue, marginal cost, and average total cost curves for Figglenuts-R-Us, a monopolist in the figglenut market. Figglenuts-R-Us will sell _____ figglenuts and set a price of _____ to maximize profits. A.) 70; $65 B.) 100; $50 C.) 150, $46 D.)120; $40
70; $65
Which statement describes the equity-efficiency trade‑off?` A.) Actions intended to make economic outcomes fairer may cause efficiency to decrease. B.) The least efficient economic outcome is the fairest outcome. C.) Government intervention can increase efficiency in a market. D.) There is always a more equitable outcome that is also more efficient.
Actions intended to make economic outcomes fairer may cause efficiency to decrease.
Look at the figure Tax Incidence. All other things unchanged, when a good or service is characterized by a relatively inelastic demand, as shown in panel _____, the greater share of the burden of an excise tax imposed on it is borne by _____.
D; buyers
Something is a normal good if the demand for the good: A.) decreases if the price of a substitute good increases B.) increases if the price of a complement good increases C.) increases as the consumer's income decreases D.) increases as the consumer's income increases E.) decreases as the income of the consumer increases
Increases as the consumer's income increases.
The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity supplied change? A.) It would decrease by 18,000 units B.) it would increase by 32,000 units C.) It would decrease by 30,500 units D.0 it would decrease by 30,000 units
It would decrease by 18,000 units.
(Figure: Payoff Matrix for Jake and Zoe) Jake & Zoe are the only producers of slushies in Vacatown. each week, each firm decides whether to price high or price low for the following week. the figure shows the profit per week earned by the two firms. what is the Nash equilibrium for Jake & Zoe?
Jake prices low; Zoe prices low
You and other college students are deciding whether to major in music or engineering. You learn that there is a shortage of engineers, making it easy for engineering graduates to find employment, while there is a glut of musicians for whom finding a job is difficult. As a result, you and many other college students decide to major in engineering. Which economic principle does this illustrate?
Markets tend to move towards equilibrium as individuals respond to incentives
A monopoly is best characterized by which of the following?
a product with no close substitutes
Look at the figure The Market for Hybrid Cars. What area represents deadweight loss if there is a price ceiling at P3? A.) b+c+d+e B.) c+e C.) c D.) a+b+c
c+e
Excess demand occurs when: A. The price is above the equilibrium price B.) the price is below the equilibrium price C.) The quantity demanded exceeds the quantity supplied and when the price is below the equilibrium price. D.) the quantity demanded exceeds the quantity supplied.
The quantity demanded exceeds the quantity supplied and when the price is below the equilibrium price.
Which of the following is a consequence of a non-binding price floor? A.) the quantity demanded will always exceed the quantity supplied. B.) There will be upward pressure on prices until quantity demanded equals quantity supplied. C.) There will be downward pressure on prices until quantity demanded equals quantity supplied. D.) There are no consequences to a non-binding price floor E.) The quantity demanded will always be smaller than the quantity supplied.
The quantity demanded will always be smaller than the quantity supplied.
Classify each statement as true or false by dragging it into the corresponding category. When 2 countries choose to partake in international trade, it is a mutually beneficial activity for both countries. Through specialization and trade it is possible for a country to consume a combination of goods that is beyond its original production possibilities frontier. Wealthier countries always benefit more from international trade than poorer countries. Countries trade for goods in which they do not have a comparative advantage, and therefore, would never trade with nations that have similar resource endowments.
True: When 2 countries choose to partake in international trade, it is a mutually beneficial activity for both countries. Through specialization and trade it is possible for a country to consume a combination of goods that is beyond its original production possibilities frontier. False: Wealthier countries always benefit more from international trade than poorer countries. Countries trade for goods in which they do not have a comparative advantage, and therefore, would never trade with nations that have similar resource endowments.
Why is the shape of the production possibilities frontier (PPF) often curved instead of straight? A.) The productive efficiency of an economy decreases as it moves from left to right along the PPF. B.) To take a potential sunk cost into account, the PPF is curved to distribute the burden of the sunk cost based on allocative efficiency. C.) Because the production possibilities frontier is based on the productive capabilites, and of a nation overall, rather than the productive capacity of an individual. D.) Typically, some resources are better suited for producing one good than another, which means that there are diminishing returns when moving such resources away from producing what they are best suited for.
Typically, some resources are better suited for producing one good than another, which means that there are diminishing returns when moving such resources away from producing what they are best suited for.
Apartment rent control in NYC is an example of:
a binding price ceiling.
An "either-or" decision entails:
a choice between 2 activities
A student organization is formed on your college campus to protest against the high rent for apartments near campus. This organization is planning a meeting with the dean and president of the college. Which of the following best describes the policy the student organization will fight for?
a price ceiling
Suppose that Georgiania was a thriving empire in its golden age. Business was booming and it was the center of international trade under the leadership of Emperor Raphael III. His empire's pride and joy was the trading of green and black tea, and he decreed that their entire economy should be built around it. However, in the mid 1800s, Georgiania experienced a severe economic downturn when the other nations of the world created an embargo on tea from Georgiania, which led to civil strife due to thousands of workers being laid off. A downward fluctuation in the economy like this is known as:
a recession.
For each of the following scenarios identify the correct term. Suppose you are a freshman in college and you have not declared a major. One reason you enrolled at your respective college was the school's vibrant social life. At the same time, you want to balance your academic life because you know that your grades will matter for graduate school or job applications. You decide to forgo partying for two hours to study for an upcoming economics exam. a. To make that decision you weighed your You start a part-time job as a package handler at a large delivery company. After training, you start your first shift and your supervisor tells you to unload packages from a single truck. Unfortunately, he tells 5 other people to do the same which causes most of you to stand around and wait for your co-workers to get out of the way. There are several other trucks already on the dock waiting to be unloaded. b. Which of the following terms best describes what your supervisor has failed at? Your economics professor is attempting to recruit more students to major in economics. She presents data showing that economics majors develop skills valuable in private industry, government, and research. She also argues that they earn a relatively higher income than other majors. Your professor is presenting you with to major in economics. c. Your professor is presenting you with _____ to major in economics. You are assigned a final group project for your economics course. One member of your group is really good at finding resources for the project, one is really good at proofreading and editing, and you are really good at making a presentation. d. Based on this, you know that via _____ you can complete the project more efficiently than if you all did each part together.
a. opportunity costs b. efficiency c.) incentives d.) specialization
Determine which economic principle is illustrated by each scenario. a.) The owner of a snow cone trailer realizes that the demand for snow cones is low during the winter, and thus, closes shop until the temperature warms back up near summertime. b.) The local river has so much pollution that three-eyed fish are forming. The government responds by regulating the amount of chemicals that can be dumped into the river. c.) At a high-end restaurant, the restaurant owner has one chef at a meat station, one chef at a vegetable station, and one chef, who has an artistic eye, plate the food she is given. The result is increased service speed, and the kitchen is able to serve more customers in an evening. d.) During the summer, a bumper crop of oranges in Florida causes a surplus in the supply of oranges nationwide. As a result, prices fall to compensate for the surplus and consumers enjoy the fruits of the farmers' labor.
a.) market efficiency b.) government intervention c.) specialization d.) equilibrium
For a normal demand curve, price elasticity of demand will be
always negative
An activity that generates external costs is referred to as:
an externality
Which of the following situations would cause the demand to shift to the right? A.) a change in tastes in preferences B.) an increase in the price of a substitute C.) an increase in the price of a complement D.) a decrease in the number of consumers E.) a decrease in the number of producers
an increase in the price of a substitute
Suppose the income elasticity of demand for pizza equals -3.37. This means pizza is:
an inferior good
An economy is said to have a comparative advantage in the production of a good if it can produce that good: A.) outside its production possibility frontier b.) with more resources than another economy C.) with a higher opportunity cost than another economy D.) at a lower opportunity cost than another economy.
at a lower opportunity cost than another economy.
Conditions that keep new firms out of a monopoly market are:
barriers to entry
Control of a scarce resource or input, economies of scale, technological superiority, and government-set rules and regulations are forms of:
barriers to entry
Producer surplus is depicted by the area:
below market price and above the supply curve
The price of good X increases by 25%, causing the quantity consumed of good Y to decrease by 10%. If everything else is held constant in the economy, we can say with certainty that good X and good Y are:
complements
An excise tax causes inefficiency because the number of transactions in a market is reduced. Because the tax discourages mutually beneficial transactions, there is a(n)________ from a tax.
deadweight loss
All else being held constant, an increase in the price of a good would necessarily:
decrease consumer surplus.
An expectation of a lower price in the future will: A.) decrease current demand B.) increase current demand C.) not change demand D.) cause demand to stay the same but increase the quantity demanded E.) cause demand to stay the same but decrease the quantity demanded
decrease current demand.
(Figure: Market for Lattes) If, in the market for lattes shown in the figure, the government assesses a tax of $0.75 on sellers of lattes, the price the producer will receive for a latte after the tax will: A.) decrease from $2 to $1.50 B.) decrease from $2 to $1.25 C.) change, but we cannot determine by how much D.) decrease from $2 to $1.75
decrease from $2 to $1.50
Refer to the accompanying figure. When the price changes from P1 to P2, we will see a(n): A.) decrease in supply from Q1 to Q2 B.) increase in supply from Q2 to Q1 C.) shift of the supply curve D.) decrease in quantity supplied from Q1 to Q2 E.) increase in quantity supplied from Q2 to Q1
decrease in quantity supplied from Q1 to Q2
A tax leads to a(n) _____ in consumer surplus and a(n) ____ in producer surplus.
decrease; decrease
A natural monopoly exists when:
economies of scale provide large cost advantages to having one firm produce the industry's output.
All points inside the production possibility frontier represent:
efficient production points.
According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _____ the marginal cost, _____. A.) less than; an activity should be reduced B.) more than; net benefit is maximized C.) more than; an activity should be reduced D.) equal to; an activity is being produced at the optimal quantity
equal to; an activity is being produced at the optimal quantity
A natural monopoly exists whenever a single firm:
experiences economies of scale over the entire range of production that is relevant to its market.
Accountants use only ________ costs in their computations of cost.
explicit
Which is NOT an example of a resource? A.) land B.) human capital C.) labor D.) machinery E.) firms
firms
In an oligopoly:
firms recognize their interdependence
A factor of production whose quantity CANNOt be changed during the short run is a(n) _____ factor of production.
fixed
If the state government gave you the exclusive right to sell cement to municipalities, your monopoly would result from:
government restrictions to entry
Goods that are necessities are very likely to have: A.) highly elastic supply B.) highly inelastic demand C.) very low supply D.) highly elastic demand E.) very low demand
highly inelastic demand
A perfectly price-elastic demand curve is:
horizontal
Assuming a normal upward-sloping supply curve and downward-sloping demand curve, if the government imposes a $5 excise tax on leather shoes and collects the tax from the suppliers, the price of leather shoes will:
increase by less than $5
(Figure: Market for Lattes) If, in the market for lattes shown in the figure, the government assesses a tax of $0.75 on each latte, the price the consumer pays for a latte after the tax will: A.) increase from $2 to $2.25 B.) increase from $2 to $2.50 C.) increase from $2 to $2.75 D.) change, but we cannot determine by how much.
increase from $2 to $2.25
(Figure: Total Product) Between 0 and point L1 the marginal product of labor is
increasing
When the price increases by 30% and the quantity demanded drops by 10%, the price elasticity of demand is:
inelastic
In a market-oriented economy, individuals' economic lives are said to be
interrelated with many other individuals and firms
Wine and cheese are complement goods because they are consumed together. What would you expect to happen to the equilibrium quantity of cheese if the price of wine increased and all else is held constant?
it would decrease because fo a demand shift.
A binding price ceiling is designed to:
keep prices below the equilibrium level.
The Kansas market for corn is considered a competitive market. This means there are ______ buyers and _____ sellers of corn in Kansas.
many; many
A "how much" decision is best made by comparing the_____ of an action to the _____ to that action.
marginal benefits; marginal costs
The seaport town of New Monopoly has become extremely popular with shipping companies due to its superior location. The port has become so congested that ships must wait hours every day just to dock. This is an example of:
market faliure
Microsoft and its operating system are often cited as an example of a company that grew into a monopolist through:
network externalities
In the model of perfect competition:
no individual or firm has enough power to have any impact on price.
A cartel is an example of:
overt collusion
A key theme fundamental to all of economics is that:
people have unlimited wants by limited means to satisfy them.
Many hotel chains offer discounts for senior citizens. This is an example of ________ that is ________ in the United States. A) market power; illegal B) single-price monopoly power; legal C) price discrimination; illegal D) price discrimination; legal
price discrimination; legal
If the absolute value of the price elasticity of demand is found to be 3, then the demand is:
price-elastic
Along the lower end of a linear demand curve, the price elasticity of demand will be:
price-inelastic
When both supply and demand shift to the left, equilibrium:
quantity always falls
An example of monopolistic competition is the _____ market.
restaurant
Look at the figure An Excise Tax. If an excise tax equal to $1.10 is imposed on this good, then the price paid by its consumers will: A.) rise by $1.33 B.) rise by $1.10 C. not rise D.) rise by $0.50
rise by $0.50
There are limited resources to satisfy all of society's wants.
scarcity
An excise tax that the government collects from the producers of a good:
shifts the supply curve upward
Economics is the: A.) study of political organization B.) study of the distribution of unlimited resources to satisfy limited wants. C.) study of the consumption, production, and distribution of goods and services. D.) Exclusive study of financial markets and instruments
study of the consumption, production, and distribution of goods and services.
When a hurricane rips through Florida, the price of oranges rises because the:
supply curve shifts to the left
Consumer surplus is defined as the:
the difference between the willingness to pay for a good and the price paid to get it
By law, FICA (the Federal Insurance Contributions Act), a payroll tax, is collected equally from the employers and the employees. In reality:
the employees bear almost all of the burden of the tax.
When the demand curve shifts to the right and the supply curve is held constant:
the equilibrium price and quantity increase
A persistent shortage may occur if: A.) the government imposes a price ceiling, B.) the government imposes a price floor C.) Demand keeps falling D.) supply shifts rightward
the government imposes a price ceiling
Daniel has decided to open his own bakery using locally sourced ingredients and supplies. He provides income and jobs to local suppliers. He also provides his community with a place to buy delicious baked goods. This is an example of: A.) a recession B.) market faliure C.) the invisible hand D.) a command economy
the invisible hand
The mayor of New Monopoly realizes that the congestion at the port costs the shipping companies and his town money. Which decision would NOT move him towards a command economy? A.) the mayor orders the port's employees to work extra hours B.) the mayor decides to let individual firms and consumers find a solution for the excessive wait time. C.) the mayor decides to only allow the five most profitable shipping companies to use the port.
the mayor decides to let individual firms and consumers find a solution for the excessive wait time.
Market structures are categorized by the following two criteria:
the number of firms and whether or not products are differentiated
Network externalities exist when a good's value to the consumer rises as:
the number of people who use the good increases.
An economy is: A.) the group of individuals that lead a society B.) the system society uses to coordinate productive activities C.) the geographical boundaries of a nation D.) the political organization of a nation.
the system society uses to coordinate productive activities
The five-dollar Burger Joint gift card that your friend gave you for your birthday expires today. You can either use the gift card to buy yourself dinner at Burger Joint, or you can stay home and eat a delicious home-cooked meal. What is the opportunity cost of eating the home-cooked meal?
the value of the ingredients that go into the home-cooked meal, and the value of a five-dollar dinner at Burger Joint.
A monopolistically competitive industry such as pastries and a perfectly competitive industry like soybean farming are alike in that:
there are many firms in each industry.
The day-to-day living conditions of modern Americans are very different from what they were in the 20th century. While doing research for an economics project, Charlie discovers that more households today, as compared to households 100 years ago, have electricity, air conditioning, and a car. Which of the following explains why modern Americans enjoy a higher standard of living than Americans 100 years ago? In which field do researchers focus on investigating the phenomena described?
there has been economic growth in our society. Economics
Comparing the benefits and costs of engaging in an activity.
trade-off
A factor of production whose quantity can be changed during the SHORT run is a(n) _____ factor of production.
variable