ECON Final
Match the terms listed with their defination: 1) the extra satisfaction a person obtains from consuming one more unit of a good or service 2) When the consumption of an additional unit of a good or service provides the person with a smaller increase in satisfaction than previous units 3) When the additional consumption of a good or service makes a person worse off 4) the satisfaction expierence from consuming a good or service
1) Marginal utility 2) diminishing marginal utility 3) negative marginial utility 4) utility
What is the primary difference between accounting profits and economic profits? 1) The primary difference is that 2) Russ owns a fried chicken stand at the local beach. In calculating how much he earns from his business, Russ notices a difference between his economic and accounting profits. - Why would Russ' economic profits differ from his accounting profits They could differ because?
1) accounting profits ignore implicit costs; economic profits consider them. 2)he may have implicit costs associated with operating the chicken stand in addition to explicit costs.
Match the definitions with the terms that most closely align with the description. 1) the cost of producing one more unit of a good or service 2) the benefit experienced from undertaking one more unit of an activity 3)the amount that, when produced or consumed, results in the greatest possible net gain
1) marginal cost 2) marginal benefit 3) optimal quantity
(Figure: Payoff Matrix for Alex and Sybil) Use Figure: Payoff Matrix for Alex and Sybil. Alex and Sybil are the only producers of frozen yogurt in their town. Every week, each decides how much to produce for the following week. The figure shows the profit per week earned by their two firms. Suppose the firms each decide to price high initially and adopt a tit-for-tat strategy for the following weeks. After a few weeks, Alex's weekly profit would be _____, and Sybil's weekly profit would be _____.
1,000; 1,000
Keanna and Joanna, who are roommates in Los Angeles, both received raises from their respective employers. Keanna now purchases more iTunes downloads than before, while Joanna purchases fewer. For Keanna, iTunes downloads are a _____ good; Joanna's income elasticity of demand for iTunes downloads is _____.
normal; negative
Suppose the local water treatment facility (a natural monopoly) is required to pay a water licensing fee to the city government to continue operating its water treatment plant. The new fee will be somewhat less than the economic profit the firm now earns. In response to the increase in fees, the firm will:
not change its price.
Steve is trying to diet. Each day he says the diet will begin today, but each time he sees potato chips, he indulges in them. The next day, he promises his diet will really start, but the vicious cycle continues
overconfidence
Geneva is a researcher at a biotech firm, and faces decision paralysis every time a big question is posed to her. Whenever her boss asks her what project she wants to work on, she always says she is indifferent, so eventually her boss stops asking for her input and just assigns her however he wants.
status quo bias (Status quo bias is an emotional bias)
Which of the following illustrates a policy solution to an inefficiency caused by an externality?
the gov offers free vaccines
Assume that a monopoly firm is currently incurring economic losses. If a permanent change in fixed cost lowers average total cost below the demand curve:
the monopoly will earn economic profit
Anthony operates the Halsted Street Deli and Bagel in downtown Chicago, serving delicious sandwiches and comfort food. The deli industry is monopolistically competitive. Anthony, along with every other deli in town, is producing the quantity that minimizes average total cost. Assuming the delis are maximizing profits, the:
the number of deli will eventually increase
(Table: Nike and Reebok Advertising Game) Use Table: Nike and Reebok Advertising Game. The sneaker industry is dominated by Nike and Reebok, and each firm spends a lot of money on advertising. Suppose each firm is considering a costly television commercial during the World Series. The table shows the payoff matrix of profits that each firm would receive from its advertising decision, given the advertising decision of its rival. Profits in each cell of the payoff matrix are given as (Nike, Reebok). If each firm independently decides whether to advertise, the Nash equilibrium is for Nike _____ and Reebok _____ during the World Series.
to advertise; to advertise
When farmers grow apples, there are a number of external costs. In particular, apples not sold or picked in a timely fashion spoil and become rotten and thus generate methane gas. If the marginal external cost is $10 per bushel of apples, and the government imposes a tax of $20 per bushel of apples, then at the equilibrium price and quantity of apples:
too few apples will be picked
A paper manufacturing plant dumps pollution into the Salmon Arm. This pollution leads to higher costs and disruption for fishermen on the river, for which they are not compensated. In this situation:
too many of society's resources are being used to produce paper.
The price elasticity of demand for leaf lettuce has been estimated as 0.75. If an insect infestation destroys 25% of the nation's leaf lettuce crop (and thus reduces supply), how will that affect total consumer expenditure on leaf lettuce, all other things equal?
total consumer expenditure will rise
In a small town in Kansas, the owner of the town's only gas station claims that he will sell the same quantity of gas no matter how high or low the price. If his assertion is correct, the demand curve for gas at his station must be _____, with a price elasticity of _____.
vertical; zero
Brayden receives some utility from consuming a bottle of store-brand soda (an inferior good) but would much rather purchase a name-brand soda (a normal good). Suppose the price of a bottle of store-brand soda increases and the quantity that Brayden purchases increases. Assume that a bottle of store-brand soda is not a Giffen good. 1) Which effect causes Brayden's quantity demanded of a bottle of store-brand soda to decrease? 2) Which effect causes Brayden's quantity demanded of a bottle of store-brand soda to decrease?
1) Substitution effect 2) Income effect
Lukas installs custom alarm systems in cars. If he installs seven alarms per day, his total costs are $300. If he installs eight systems per day, his total costs are $400. Lukas will install eight alarm systems per day only if the eighth customer is willing to pay at least:
100
Which of the following statements describes efficiency?
2 and 3
David's financial planner tells him that he made a profit of $31,300 running a ballroom dance studio in Sacramento. David's wife, an actuary, claims David lost $31,300 running his ballroom dance studio. This means his wife is claiming that he incurred _____ in _____ costs.
62,600; implicit
Which strategy is NOT an example of price discrimination?
A Presidents day sale
In one day, Keshia can bake 10 muffins or mix 15 glasses of passion fruit juice. His friend Alicia can bake 10 muffins or mix 10 glasses of passionfruit juice. His other friend, Ewan, can bake 10 muffins or mix 20 glasses of passionfruit juice. Who has the LOWEST opportunity cost in muffin production?
Alicia
Lenore's puppy pampering salon has a total cost curve expressed by the equation
becomes steeper
When Emily's computer factory hires two workers, the total product is 250 computers. When Emily hires three workers, the total product is 248 computers. And when she hires four workers, the total product is 245 computers. The marginal product of the third and fourth workers is:
decreasing and negative
In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. In the long run, the
entry; downward; decreases; decreases
A dozen friends get together for a bachelorette party to celebrate an upcoming wedding. If cake is served and cut into 12 pieces of the same size, and each of the 12 attendees gets a slice, the cake distribution is:
equitable
When the Dairy Farmers of America (an agricultural coop) restricts the supply of milk to increase the profits of dairy farmers, the milk market:
fails because there is no longer an efficient allocation of resources.
If the United States imposes an import quota on Portuguese port, the result in the short run is likely to be _____ profits for American wine producers and _____ profits for Portuguese port producers.
higher; lower
"A monopoly is producing output, with an average total cost is $60, marginal revenue of $80, and a price of $100.
increase output
Suppose that the American government imposes a binding quota on the number of German-made cars allowed into the United States. Assuming that German-made cars and American-made cars are substitutes in consumption, we would expect the price of German cars to _____ and the price of American-made cars to _____.
increase; increase
Amelia is a utility-maximizing consumer who spends her entire budget on the optimal quantity of belts and sunglasses. The price of belts falls. Amelia will _____ her consumption of belts if belts are a(n) _____ good and (because) the income effect _____ the substitution effect.
increase; normal; reinforces
Tiffany lives in Alameda, California. She recently received two job offers, one in Oakland and one in San Francisco. The San Francisco job pays $1000 more per year, so Tiffany accepts the job. However, the travel time, which is an hour more each way, quickly becomes a burden.
misperceiving opportunity cost
Most large public transit systems charge lower rider fares to senior citizens, students, and children. If this pricing strategy increases the profits of the transit system, we can conclude that individuals in the reduced fare categories have a _____ demand for public transit service than other passengers have.
more elastic
When Emily's computer factory hires two workers, the total product is 250 computers. When Emily hires three workers, the total product is 260 computers. And when she hires four workers, the total product is 265 computers. The slope of the marginal product curve between two and four workers hired is:
negative
Jennifer's Sunglass Hut operates in a perfectly competitive industry and has standard cost curves. The variable costs at Jennifer's Sunglass Hut increase, so all the cost curves (except fixed cost) shift upward. The demand for Jennifer's sunglasses does not change, nor does the firm shut down. To maximize profits after the variable cost increase, Jennifer's Sunglass Hut will _____ its price and _____ its level of production.
not change; decrease
A decrease in the fixed costs of a monopoly firm would _____ price and _____ quant
not change; not change
Anthony operates the Halsted Street Deli and Bagel in downtown Chicago, serving delicious sandwiches and comfort food. The deli industry is monopolistically competitive. Assuming that Anthony is maximizing profits, his:
price is more than his average total cost.
Mark runs a gardening business in a perfectly competitive industry. He knows that he will break even if the price of his services for garden maintenance is $15 but that he will have to shut down if the price is $11 or lower. If the market demand in the industry is
produce but make zero economic profit if service matinence is $16 instead of 15 then - produce with a loss
If the government levies an excise tax in a market whose supply curve is perfectly inelastic, the burden of the tax will fall completely on the _____, and the deadweight loss will equal _____.
producers; zero
If the government levies an excise tax in a market whose supply curve is perfectly elastic, the burden of the tax will fall completely on the _____, and the deadweight loss will equal _____.
producers; zeroF
Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:
producing more than the quantity that maximizes jint profit
Suppose the federal government considers implementing a "travel tax" for individuals who travel abroad. If the government imposes a $700 travel tax on U.S. citizens, the deadweight loss from this tax will be:
relatively large
If a product that generates a negative externality is priced so as to internalize the externality, its price will likely:
rise, and output will likely fall.
Suppose that Anna is a profit-maximizing monopolist who creates a new technology that reduces her marginal and average total costs by $40. If, as a result of this cost reduction, Anna changes her price in a profit-maximizing way, then her total output will:
rise.
The market for smoothies is in equilibrium, and the price of yoghurt (an ingredient in smoothies) rises. In the smoothies market, _____ will _____, _____ the price and _____ the quantity.
supply; decrease; increasing; decreasing
Suppose that a binding price floor is in place in a particular market. If the market is deregulated, and the price floor is removed:
the quality of the good supplied will likely decrease.
A binding price floor is likely to cause deadweight loss because:
the quantity of the good transacted
It is certain that the equilibrium price will fall when:
the quantity supplied is greater than the quantity demanded
Everyone benefits from road signs that provide directions for motorists, yet the marginal benefit to any one individual usually falls short of the marginal cost. This is an example of
the unsuitability of some goods
Saleable licenses that permit bearers to emit limited quantities of pollutants are called:
tradeable emissions profits
Potatoes are an inferior good. If there is an increase in income, total surplus in the potato market:
will decrease.
Janelle loves sashimi. Her first piece of sashimi normally gives her a marginal benefit of $5. Each additional piece yields a marginal benefit that declines by $0.25 per piece. If her favorite sushi bar charges $2.75 per piece of sashimi, how many pieces should she eat?
$10
Brianna and India are shopping together at the mall for new sandals. Brianna is willing to pay $90, and India is willing to pay $50 for a pair of sandals. What is the gain in total consumer surplus when the price decreases from $59 to $40?
$29
Kelly Confections produces 10 cupcakes per day. The marginal cost of the 10th cupcake is $24, and average total cost of 10 cupcakes is $6. The average total cost of 9 cupcakes is:
$4
Tamara's budget constraint for pounds of fertilizer
$5; $500
Suppose Sydney knows that the average total cost of producing 9 crumpets is $5, while the average total cost of producing 10 crumpets is $5.20. What is the marginal cost of the 10th crumpet?
$7.00
If the price of profiteroles decreases from $2.00 to $1.55, and the quantity demanded of profiteroles increases from 180 pastries to 220 pastries, then the price elasticity, obtained using the midpoint method, is:
0.79.
For a given reduction in emissions, an emissions tax is more efficient than an environmental standard because all polluters:
Emit pollution up to the point at which the marginal benefit of polluting is equal to the emessions tax.
Which statement is TRUE?
In choosing the profit-maximizing quantity, the short-run decision-making process of a monopoly is the same as that of a monopolistically competitive firm, since they produce so that
The Chicago Tribune recently reported that the price of new cars, a normal good, has increased and that the quantity of new cars sold has risen. The new price and quantity could have been caused by a(n):
Increase in buyers income
Jim is washing his laundry and, as he checks his pockets, finds an unexpected windfall of $50. Elated because it is $50 more than he had before, he decides to splurge on a lobster-and-filet-mignon dinner.
Mental accounting (describe the process whereby people code, categorize and evaluate economic outcomes)
Which situation would most likely cause an INCREASE in consumer surplus in the toy market?
The cost of shipping decreases because of lower oil prices.
Suppose Pennsylvania produces only steel and barley, with fixed amounts of land, labor, and capital resources. Which scenario BEST sets the stage for economic growth?
The percentage of Pennsylvania residents with a university degree rises from 15% to 23%.
Two neighbors, Virginia and Susan, are separated by a white fence. Each neighbor has a garden that grows potatoes and lima beans. To gain from trade, _____ can trade _____ to _____ for _____ if _____ is the more efficient grower of lima beans.
Virginia; lima beans; Susan; potatoes; Virginia
An increase in price and an ambiguous change in quantity are MOST likely caused by:
a shift to the left of the supply curve and a shift to the right of the demand curve.
The term "opportunity cost" implies that
any decision regarding the use of a resource involves choosing between alternatives.
The average total cost of producing wireless routers in a factory is $20 at the current output level of 100 routers per week. If the fixed cost is $1,200 per week:
average variable cost is $8
(Figure: Payoff Matrix for Red River and Yellow Sun) Use Figure: Payoff Matrix for Red River and Yellow Sun. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. The dominant strategy for Red River is to:
charge a low price.
If an economy has to sacrifice only one unit of cheese for each unit of yogurt produced throughout the relevant range, then its production possibility frontier has a(n):
constant negative slope
If the demand for online movie downloads is perfectly inelastic, and a unit tax is levied on consumers:
consumers will pay the entire tax
The market for Chinook salmon is in equilibrium. A binding price floor in this market would cause:
deadweight loss, arising from a quantity transacted that is less than the equilibrium quantity.
Deadweight loss will _____ when a monopolist goes from single-price monopoly to perfect price discrimination.
decrease
In perfect competition, a change in fixed cost will:
encourage entry or exit in the long run, with price changing so as to leave firms earning zero profits.
The demand for most farm fresh produce is generally price elastic. This means that if farmers, taken collectively, have a bumper crop, they will have _____ prices, _____ quantities sold, and _____ incomes.
lower, greater, lower
A monopolist responds to an increase in marginal cost by _____ price and _____ output.
increasing; decreasing
The municipal golf course charges lower green fees to local residents than to nonresidents. If this pricing strategy increases the profits of the golf course, we can conclude that nonresidents have a _____ demand for golfing at the municipal course than residents have.
less elastic
Alexander is heavily invested in the stock of Nortel, a telecommunications giant. However, Nortel has been in steady decline, and even though all signs point to the fact that Nortel will likely go bankrupt, Alexander holds onto his stocks, unwilling to sell unless he makes back at least the money he invested.
loss aversion
Assuming an upward sloping supply curve for each of the following goods, a tax on which one would result in the SMALLEST deadweight loss?
medicine
Spain and Italy both produce port and wool with constant opportunity costs. Spain can produce 150 barrels of port if it produces no wool or 100 bolts of wool if it produces no port. Italy can produce 50 barrels of port if it produces no wool or 150 bolts of wool if it produces no port. When international trade takes place, each country specializes completely in the production of the good in which it has a comparative advantage: 1 barrel of port exchanges for 1 bolt of wool and Spain exports 50 units of port. We can conclude that Italy produces _____ units of port and _____ units of wool and that Italy consumes _____ units of port and _____ units of wool.
0, 150, 50, 100