exam 2 economics

Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. Which of the following statements is correct? a. For the three individuals together, consumer surplus amounts to $35. b. Having bought the cell phone, Kristen is better off than she would have been had she not bought it. c. Had the price of the cell phone been $95 rather than $80, Katie and Kendra definitely would have been buyers and Kristen definitely would not have been a buyer. d. The fact that all three individuals paid $80 for the same type of cell phone indicates that each one placed the same value on that cell phone.

a

David tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $150 per tuning. One particular week, David is willing to tune the first piano for $115, the second piano for $125, the third piano for $140, and the fourth piano for $175. Assume David is rational in deciding how many pianos to tune. His producer surplus is a. $25. b. $35. c. $70. d. $95.

b

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? a. the $20 million payment that the firm pays each year for accounting services b. the cost of the steel that is used in producing automobiles c. the rent that the firm pays for office space in a suburb of St. Louis d. All of the above are correct.

b

Suppose Larry, Moe and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called a. a resistance price. b. willingness to pay. c. consumer surplus. d. producer surplus.

b

The total cost to the firm of producing zero units of output is a. zero in both the short run and the long run. b. its fixed cost in the short run and zero in the long run. c. its fixed cost in both the short run and the long run. d. its variable cost in both the short run and the long run.

b

Total surplus is equal to a. value to buyers - profit to sellers. b. value to buyers - cost to sellers. c. consumer surplus x producer surplus. d. (consumer surplus + producer surplus) x equilibrium quantity.

b

A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its total costs are $4,500. The marginal cost of producing the 101st unit of output is $300. What is the total cost of producing 101 units? a. $46.53 b. $800 c. $4,800 d. $5,300

c

A price ceiling is binding when it is set a. above the equilibrium price, causing a shortage. b. above the equilibrium price, causing a surplus. c. below the equilibrium price, causing a shortage. d. below the equilibrium price, causing a surplus.

c

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 a. average variable cost of 21 pairs of boots is $23. b. average total cost of 21 pairs of boots is $23. c. average total cost of 21 pairs of boots is $15.09. d. marginal cost of the 20th pair of boots is $20.

c

Diminishing marginal product suggests that the marginal a. cost of an extra worker is unchanged. b. cost of an extra worker is less than the previous worker's marginal cost. c. product of an extra worker is less than the previous worker's marginal product. d. product of an extra worker is greater than the previous worker's marginal product.

c

Price controls a. always produce a fair outcome. b. always produce an efficient outcome. c. can generate inequities of their own. d. Both (a) and (b) are correct.

c

To fully understand how taxes affect economic well-being, we must a. assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed. b.compare the taxes raised in the United States with those raised in other countries, especially France. c. compare the reduced welfare of buyers and sellers to the amount of revenue the government raises. d. take into account the fact that almost all taxes reduce the welfare of buyers, increase the welfare of sellers, and raise revenue for the government.

c

Which of the following statements about costs is correct? a. When marginal cost is less than average total cost, average total cost is rising. b. The total cost curve is U-shaped. c. As the quantity of output increases, marginal cost eventually rises. d. All of the above are correct.

c

You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. Harpo, who is one of your advisors, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Chico, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Zeppo, a third advisor, says that the best way to avoid a shortage of oranges is to take no action at all. Which of your three advisors is most likely to have studied economics? a. Harpo b. Chico c. Zeppo d. Apparently, all three advisors have studied economics, but their views on positive economics are different.

c

As Al's Radiator Company adds workers while keeping the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Al's Radiator Company encounters a. economies of scale. b. diseconomies of scale. c. increasing marginal returns. d. diminishing marginal returns.

d

At present, the maximum legal price for a human kidney is $0. The price of $0 maximizes a. consumer surplus but not producer surplus. b. producer surplus but not consumer surplus. c. both consumer and producer surplus. d. neither consumer nor producer surplus.

d

Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely to be considered fixed costs? a. the cost of mustard b. the cost of hotdog buns c. wages paid to workers who sell hot dogs d. the cost of bookkeeping services

d

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the a. tax is placed on the sellers of the product. b. tax is placed on the buyers of the product. c. supply of the product is more elastic than the demand for the product. d. demand for the product is more elastic than the supply of the product.

d

Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle. Which of the following statements is correct? a. This tax causes the supply curve for liquor to shift upward by $1.00 at each quantity of liquor. b. The effective price received by sellers is $0.20 per bottle less than it was before the tax. c. Eighty percent of the burden of the tax falls on buyers. d. All of the above are correct.

d

Taxes cause deadweight losses because taxes a. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. b. prevent buyers and sellers from realizing some of the gains from trade. c. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. d. All of the above are correct.

d

When a factory is operating in the short run, a. it cannot alter variable costs. b. total cost and variable cost are usually the same. c. average fixed cost rises as output increases. d. it cannot adjust the quantity of fixed inputs.

d

Which of the following statements about a production function is correct for a firm that uses labor to produce output? a. The production function depicts the relationship between the quantity of labor and the quantity of output. b. The slope of the production function measures marginal product. c. The slopes of the production function and the total cost curve are inversely related; if one is increasing, the other is decreasing. d. All of the above are correct.

d