JSU EC 321 Final

Ahmed, Boris, Roberto, and Sunil all want to attend a football game. The admission price is $48. Ahmed is willing to pay $59, Boris $39, Roberto $45, Sunil $55. Based on this information, who will go to the game?

Ahmed and Sunil

Many firms compete in providing overnight delivery services. If the market for overnight delivery services experiences and increase in price, what must have happened?

An increase in demand and a decrease in supply

5. The medallion system used to license taxicabs in New York City is an example of:

a quota

6. Luis operates a cherry orchard in Northern Oregon and sells the cherries in a perfectly competitive market at a price of $1.70 per pound. Last month Luis sold 2,000 pounds of cherries. His fixed cost of production was $800 and his average variable cost was $1.00 per pound. What was his profit?

a. $600

2. Nadia operates a frame shop and charges the perfectly competitive price of $65 for custom framing of a standard size picture. She is a price-taking producer. In order to maximize her profit, Nadia will:

a. Accept framing orders up until the point where the marginal cost of doing so is $65.

10. Assume the cross-price elasticity of demand for Coke and Pepsi is equal to 3. If Pepsi raises its price by 10%, then the quantity of:

a. Coke demanded will increase by 30%.

5. Suppose an industry initially had been perfectly competitive and then became a monopoly. Which of the following would occur?

a. Consumer surplus would decrease.

15. Which of the following is true of monopolistic competition but is not true of perfect competition?

a. Each firm distinguishes its product from that of its competitors.

3. Which of the following is not a characteristic of a perfectly competitive industry?

a. Each firm seeks to undercut the price of its competitors.

Regardless of the price of ice cream, Charlie spends $5 a week on ice cream. What can we conclude about Charlie's demand for ice cream?

a. His income elasticity of demand for ice cream is equal to one.

10. Mario is willing to mow one lawn for $18; he will mow a second for $22, and a third for $28. Assume that the market rate for lawn mowing is $24. How many lawns will Mario mow? What will be his total revenue? What will be his producer surplus?

a. Mario will mow two lawns for a total revenue of $48, and his producer surplus will be $8.

Graciela is willing to sell 1 dozen roses for $50, while Giuseppe is willing to sell 1 dozen roses for $60. Carlos is willing to buy 1 dozen roses for $60, while Yuriko is willing to pay $50. If the market price is $52, how many roses are sold and what is the sum total of consumer and producer surplus after the transaction(s)?

a. One dozen roses will be sold, and the total consumer and producer surplus will be $10.

7. Suppose a monopoly firm has a constant marginal cost equal to $10. Its demand and marginal revenue curves are given, respectively, by the equations P = 86 - 2Q and MR = 86 - 4Q. For this firm, the profit-maximizing price and output levels are:

a. P = $48; Q = 19.

11. Which of the following describes accurately the long run in perfect competition but is not true of the long run in monopolistic competition?

a. The firm produces where ATC is minimized.

14. What is the result of a binding quota restriction on quantity?

a. The market-clearing price will be higher than the equilibrium price.

4. Which of the following is a likely result of a price floor imposed on providers of a particular service?

a. The service providers will offer an inefficiently high quantity.

9. Which of the following statements is correct?

a. When the price of a good increases, total revenue tends to increase due to the price effect and tends to decrease due to the sales effect.

1. Since the marginal product of labor equals the change in the quantity of output divided by the change in the quantity of labor, it stands to reason that:

a. a firm would never operate in the range where marginal product is negative.

11. Market failure arises when the market fails to:

a. achieve an efficient outcome.

2. Why did the U.S. experience a gasoline shortage in 1979?

a. because the price of gas was legally prevented from rising to its equilibrium level

17. Which group of people would be most likely to support a tariff imposed on cotton imported into the United States?

a. cotton growers in the United States

12. The quantity supplied by a perfectly competitive firm at a given market price is determined by the:

a. firm's marginal cost curve.

18. A progressive tax is one in which:

a. high-income taxpayers pay a larger percentage of their income as tax than do those with lower incomes.

13. Compared with autarky, international trade leads to:

a. higher production in exporting industries and lower production in import-competing industries.

2. What do you have to know to calculate the price elasticity of demand?

a. how much of the good was purchased at each of two different prices

1. The United States has a comparative advantage in the creation of computer software, because this task is intensive in the use of:

a. human capital

15. In the United States, growing international trade has:

a. increased the wages of highly educated workers.

5. The opening of trans-Atlantic trade in the late 19th century had a large negative impact on:

a. land rents in Europe.

9. How long is the long run?

a. long enough that all costs can become variable

12. A firm experiencing constant returns to scale operates on the horizontal part of the:

a. long-run average total cost curve.

15. Under the ____________ tax, incentives are not distorted, and taxes are ___________.

a. lump-sum; the same for everyone

14. Monopoly is a type of:

a. market structure.

8. The goal of a monopolistically competitive firm is to:

a. maximize profit.

8. The existence of profit in a perfectly competitive industry means that:

a. new producers will seek to enter the industry.

3. In today's U.S. economy, which of the following industries has firms that have acted as a monopoly for an extended period?

a. pharmaceuticals

17. The graphical result of a price ceiling is:

a. quantity demanded exceeds the amount at the equilibrium price and quantity supplied is less than the amount at the equilibrium price

2. Which of the following would be an example of a monopolistically competitive industry with differentiation by style or type?

a. running shoes

15. The demand for a good becomes relatively more elastic as:

a. substitutes for the good become more available.

4. The monopolist's marginal revenue curve is downward sloping because:

a. the monopolist must lower its price in order to sell more.

7. In 1990, the U.S. government imposed a special sales tax on yachts with a price of at least $100,000. The tax was repealed in 1993, since it generated far less revenue than expected and led to significant job losses in the yacht building industry. The sales tax might have been unsuccessful because:

a. the supply and the demand for yachts were relatively elastic.

5. Under what circumstances does the burden of an excise tax fall mainly on producers?

a. when the supply is relatively inelastic and demand is fairly elastic

4. Samir owns a coffee shop that has monthly variable costs equal to $8,560. If Samir sells 11,000 cups of coffee each month, what is the average variable cost per cup?

a.$.78

16. Price discrimination is:

b. when firms charge different prices to different customers based on their willingness to pay.

3. A firm produces children's bicycles in the short run using two inputs, capital and labor. The quantity of capital is fixed and generates a monthly cost of $6,000. The quantity of labor can be varied, and the wage rate per hour of labor is $20. If 400 hours of labor are hired for the month, and 140 bicycles units of output are produced, what is the firm's average total cost for the month?

b.$100

in a voluntary exchange:

both the producer and the consumer can experience a net benefit.

8. The amount of the deadweight loss resulting from an excise tax is:

c. the reduction in total surplus resulting from imposition of the tax less the tax revenue collected by the government.

15. The marginal product is the slope of the:

c. total product curve.

11. The sign (negative or positive) on the cross-price elasticity of demand for wine and chocolate tells us:

c. whether wine and chocolate are substitutes or complements.

13. Which of the following would enhance the level of efficiency in a market?

d. Removing a binding price floor, allowing the price to return to its equilibrium level.

12. What is the effect in the market as more firms enter a monopolistically competitive industry?

d. The demand curve faced by each firm shifts in and to the left.

13. A perfectly competitive firm is charging the market price of $18 to sell its product. The firm is producing and selling the profit-maximizing quantity of 50 units at this price. Its average total cost is $17 and its average variable cost is $15. Which of the following statements is then true?

d. The firm is earning an economic profit of $50.

14. Which of the following is true of perfect competition but is not true of monopolistic competition?

d. The firm will produce at a point where price equals marginal cost.

14. How does the long run differ from the short run in perfect competition?

d. The long run is long enough to allow for the entry of new firms into the industry.

16. What is the effect of the quota imposed on sugar imports into the United States?

d. The price of sugar within the United States is roughly twice the level of the world price.

10. What accounts for the fact that profit is zero in the long-run equilibrium in monopolistic competition?

d. There are no barriers to the entry of new firms.

18. What situation would make the demand for new cars relatively more price elastic?

d. There is a plentiful supply of used cars.

6. A bank increased its fees for processing personal checks from 18 cents to 24 cents per check. In a statement accompanying the announcement, the bank said that some customers who reduce the number of checks they write would see no change in their overall account fee. What is the implication of this statement for these customers?

d. They have a unit-elastic demand for check writing.

2. Daisy incurs $7,200 per month in fixed costs operating her floral shop. She pays her employees $9.00 per hour and has three assistants, each working 120 hours per month. Her other variable costs are $800 per month. What are Daisy's total variable costs and total costs each month?

d. Total variable costs are $4,040; total costs are $11,240.

19. What authority does the World Trade Organization have?

d. World Trade Organization has the authority to resolve disputes between countries regarding the enforcement of trade agreements.

7. Which of the following is not a likely result of a quantity control in the form of a binding quota?

d. a surplus of the good or service

13. Under the _____________ tax system, professional athletes pay more tax than janitors do.

d. ability-to-pay

10. All of the following curves are U-shaped, except the:

d. average fixed cost.

20. To persist, a monopoly must:

d. be protected by a barrier against the entry of other firms.

9. The product diversity resulting from monopolistic competition comes at the expense of having:

d. efficiency in the long run

18. In general, U.S. tariffs imposed on manufacturing imports are:

d. either very low or equal to zero.

3. Since a monopolistic competitor produces a product with many close substitutes, but none exactly like it. As a result, the firm:

d. has some degree of market power.

12. What do you have to know in order to calculate the price elasticity of supply?

d. how much of the good will be offered for sale at each of two different prices

12. The effect of a tariff is to:

d. increase both the price paid by consumers and the price received by producers.

18. Public ownership of a natural monopoly is intended to do all of the following EXCEPT to:

d. increase demand for the good.

If air travel to Hawaii becomes less expensive, what is likely to happen in the market for hotel rooms in Hawaii?

the demand curve for hotel rooms will shift to the right.

which of the following would cause a surplus of newsprint?

the demand for newsprint decreases, and the price does not change

Consumer surplus is:

the difference between the price that consumers are willing to pay for a good and the amount they actually pay

producer surplus is:

the difference between the price that producers receive and the amount for which they are willing to sell the good

A shortage is the result of when:

the price of a good is held below the equilibrium price.

4. Javier and Pierre each want to buy an ice cream cone. Javier is willing to pay $2.50 and Pierre is willing to pay $4.00. If the ice cream cone costs $2.25, what is the total consumer surplus after Javier and Pierre make their purchases?

$2

Samia is willing to pay $10 for one bracelet and $5 for the second. Isabella is willing to pay $12 for one and $2 for the second. If the price is $8, how much total consumer surplus will Samia and Isabella have?

$6

Which of the following is not an instance of market failure?

A bad harvest increases the price of oranges.

which of the following would cause a decrease in the demand for DVD rentals?

Decrease in the price of movie admissions.

If the price of a bale of cotton increases from $.80 to 1.20, and a pound of kenyan coffee decreases from $12 a pound to $10 a pound, we can expect a(n):

Increase in the quantity demanded of the Kenyan coffee

If coffee is a normal good, then an increase in consumer income will:

Increase the demand for coffee

Consider gas stations. As a result of an economic recession and a decrease in consumer incomes, there will be a:

Leftward shift in the station's demand curve and lower gas prices.

How would an increase in the price of cotton affect the market for cotton T-shirts at your university bookstore?

The supply curve for cotton t shirts will shift to the left

Consider the market for kayaks. What happens when the process of manufacturing kayaks becomes less costly through the use of new technology?

The supply curve for kayaks will shift to the right.

What best describes the competitive market?

There are many buyers and sellers of the same good.

4. For the perfectly competitive firm, economic profit equals:

b. (Price - average total cost) x quantity.

16. The marginal cost is the slope of the:

b. total cost curve.

If the demand curve shifts to the left, and the supply curve does NOT change, then the equilibrium price:

and quantity both will increase.

the equilibrium price of a good it the price:

at which there is no surplus and there is no shortage of the good.

4. Suppose that the price of overnight package delivery service is $18 before a $5 excise tax is imposed. With the tax, the price rises to $20. What is the producer's burden of the tax?

b. $3

3. Suppose that the rate for a hotel room is $75 before the imposition of an $8 excise tax. With the tax, the rate rises to $80. What is the consumer's burden of the tax?

b. $5

20. Many of the commonplace items that you use everyday are manufactured in Asia. If the Heckscher-Olin model applies, what would account for this?

b. Asian countries are abundant in low-skilled labor, and so items can be manufactured there at a relatively low opportunity cost.

8. Which group would be most likely to benefit from a binding price floor imposed on wheat?

b. Sellers of wheat who are seeking higher prices.

4. Sid and Nancy have opened a small shop selling tea and crumpets. Sid takes 1 hour to brew one pitcher of tea, and 3 hours to bake one plate of crumpets. Nancy also takes 1 hour to brew one pitcher of tea, and 2 hours to bake one plate of crumpets. From this information, we know that:

b. Sid's opportunity cost of brewing one pitcher of tea is 1/3 of a plate of crumpets.

9. Which of the following statements is true?

b. The amount of deadweight loss resulting from an excise tax will increase as the demand becomes more elastic.

10. Some proponents of an excise tax on cigarettes argue that it will discourage smoking. Others argue that it will collect revenue for the government. Given the economic model of supply and demand, which of the following is true?

b. The less elasticity there is in the supply of and demand for cigarettes, the more revenue will be collected from the tax.

7. If the price elasticity of demand for an annual magazine subscription is 1.6 in the range between $26 and $30, what happens in the market when the subscription price rises from $26 to $30?

b. There will be a decrease in the total revenue the magazine collects on its subscriptions.

15. A price ceiling is presented graphically as:

b. a price below equilibrium.

2. Which of the following is not an example of a barrier to entry?

b. an innovative product

8. Economic theory asserts that:

b. both producers and consumers gain from trade.

12. If an airline chooses to practice price discrimination to increase profit, it will:

b. charge higher fares to those with a less elastic demand.

3. During a drought, the price elasticity of demand for water is less than one. During a flood, the price elasticity of demand for water is greater than one. This means that the:

b. demand for water is inelastic during a drought and elastic during a flood.

3. Suppose that Great Britain and France each specialize according to their own comparative advantage, so that Great Britain produces fish and France produces wine. Then they engage in trade. This means that:

b. each nation can consume more of both goods than they could under conditions of autarky.

1. Which of the following is not a predictable result of a price ceiling?

b. exorbitant profits for producers of the good

9. When the world price of a good exceeds the domestic price, a country is most likely to:

b. export the good.

19. A regressive tax is one in which:

b. high-income taxpayers pay a smaller percentage of their income as tax than do those with lower incomes.

17. If a monopolist engages in price discrimination, it is with the goal of:

b. increasing profit.

6. When the price elasticity of demand exceeds the price elasticity of supply, the burden of an excise tax falls:

b. mainly on producers.

10. If a monopoly practices perfect price discrimination, it will:

b. maximize consumer surplus.

20. The Earned Income Tax Credit is a type of:

b. negative income tax.

7. In long-run equilibrium, a monopolistically competitive firm is producing at a point on its average total cost curve where:

b. price equals average total cost.

11. A binding minimum wage is a type of:

b. price floor.

9. A perfectly competitive firm earns an economic profit when:

b. price is above average total cost.

10. A firm will choose to shut down in the short run when:

b. price is below the minimum point of AVC.

18. The graphical result of a price floor is:

b. quantity supplied exceeds the amount at the equilibrium price and quantity demanded is less than the amount at the equilibrium price.

9. A binding price floor is designed to:

b. raise the price above the equilibrium price.

9. Often natural monopolies are regulated by:

b. setting the price equal to average total cost, so as to maximize consumer surplus and allow the firm to break even.

12. Which area on a graph showing a firm's supply curve represents producer surplus?

b. the area above the supply curve up to a line indicating price

5. When demand is perfectly elastic:

b. the demand curve is horizontal.

18. A perfectly competitive firm is currently selling its product at the market price of $6. Its average total cost is $5.50. In this case:

b. the firm has positive economic profits.

19. You land a marketing job with Canon after graduation in the digital camera division. After introducing a new digital camera, you estimate that the price elasticity of demand for cameras equals 2 and the income elasticity is equal to 0.5. Furthermore, the cross-price elasticity with a similar Kodak camera is equal to 1.25. Using this information, you would conclude:

b. the product demand is elastic an if your firm (Canon) decreases the price of its new camera, total revenues will increase.

6. Which cost curve is continually upward sloping?

b. the total cost curve

5. Monopolistically competitive firms can earning positive economic profits in the short run, but in the long run:

b. they will make zero economic profits.

14. The ability-to-pay principle of tax fairness says that:

b. those with higher incomes should pay more tax.

14. A firm is producing 100 racing bicycles at a total cost of $84,000. The firm's fixed cost is $24,000. What is the average variable cost?

c. $600

7. A firm produces 200 pop-up speakers at an average total cost of $27 and an average variable cost of $24. What is the firm's level of total fixed cost?

c. $600

11. Which of the following statements about monopoly is not correct?

c. A monopolist can sell as much as it wants at whatever price it chooses.

12. If a price floor is imposed above the equilibrium price in a market, what is the effect?

c. A surplus results.

11. Which of the following statements best describes the effects of trade?

c. All countries benefit when each country specializes according to its own comparative advantage.

16. Why does economic theory predict that the perfectly competitive firm will produce at the point where price equals marginal cost?

c. Because this point maximizes profit for the firm.

1. Gabriel operates a tree-trimming business in Maine. He charges the perfectly competitive price of $47 per hour. The marginal cost of working the 36th hour each week is $42; the marginal cost of working the 37th hour is $44; the 38th hour is $46; and the 39th hour is $48. How many hours should he work each week?

c. He should work 38 hours per week, because this is the workload that maximizes his net gain.

17. Suppose that firms in the perfectly competitive potato-growing industry are earning economic profits. According to economic theory, what is likely to happen?

c. More firms will enter the market, thereby increasing the industry supply and lowering the market price.

5. Tara sells her organic carrots in a perfectly competitive market for a price that is just higher than her minimum average variable cost of production, but lower than her minimum average total cost of production. Which of the following statements is then true?

c. She is incurring a loss, because price is less than ATC.

13. Which of the following is true of monopoly but is not true of monopolistic competition?

c. The firm will earn positive economic profits in the long run.

8. Which of the following statements is true?

c. Whenever marginal cost is above average total cost, average total cost is increasing.

6. A monopolistically competitive firm faces:

c. a highly elastic demand curve.

16. A price floor is presented graphically as:

c. a price above equilibrium.

7. In which of the following areas does the United States limit imports?

c. agriculture

15. A monopoly arises when there:

c. are barriers to the entry of other firms in the industry.

1. The U.S. beer industry is characterized by market power for only a few firms, with the largest firm enjoying a 50% market share. One reason for this is economies of scale. Economies of scale means that:

c. as beer production increases, the average total cost of production falls.

19. A price ceiling imposed on a monopoly:

c. can increase total surplus.

8. Autarky is a situation in which a country:

c. cannot trade.

10. If a country imports a good for which the world price is below its domestic price:

c. consumers will gain and producers will lose.

14. If the price elasticity of demand (calculated using the mid-point method) for -eBooks is 2.5, and the price of e-Books rises from $18 to $22, then the quantity demanded will:

c. decrease by 50%.

1. The price elasticity of demand measures the responsiveness of the quantity:

c. demanded to changes in price.

4. Bar owners often offer lower beer prices to women than they do to men. This will increase bar revenues:

c. if women have an elastic demand for beer.

11. The short-run individual supply curve of the perfectly competitive firm is:

c. its marginal cost curve above average variable cost.

10. A binding price ceiling is designed to:

c. keep the price below the equilibrium price.

11. An excise tax imposed on chocolate would create a deadweight loss because it will:

c. prevent some mutually beneficial trades from occurring.

13. For cities that provide snow removal, which of the following is a fixed cost?

c. purchase of snow removal equipment

1. The market for oil-change can be described as a market in which monopolistic competition prevails. This means that collusion among garages that change oil is ____________ and firms engage in _________ behavior.

c. rare; uncooperative

14. According to the Heckscher-Olin model, a country will export those goods:

c. that are intensive in its relatively abundant factors.

17. What determines the price elasticity of supply?

c. the ease with which suppliers can expand production of the good

8. If the regulated price for a natural monopoly is set equal to the marginal cost:

c. the firm will not cover all of its costs.

15. Producer surplus is positive when:

c. the price the producer is willing to charge is less than the market price.

2. The production of aluminum baseball bats is characterized by increasing returns. This means that:

c. the productivity of resources tends to increase as production increases.

15. Which of the following is not a characteristic of the long-run equilibrium in perfect competition?

d. Each firm is producing at the minimum point on the MC curve.

The downward slope of the demand curve indicates that, all else equal:

consumers will buy more of a good when its price decreases.

6. Suppose a monopoly firm has a constant marginal cost equal to $8. Its demand and marginal revenue curves are given, respectively, by the equations P = 40 - 2Q and MR = 40 - 4Q. For this firm, the profit-maximizing price and output levels are:

d. P = $24; Q = 8.

3. Which of the following statements regarding price floors is true?

d. Price floors are intended to help certain people, but they have side effects that may harm others in predictable ways.

16. Suppose after an increase in excise tax on cigarettes, the buyer now pays $10.80 per pack. The supply price per pack (the price received by producers) is $5.30. What is the amount of tax?

d. $5.50

17. In a progressive tax system:

d. As income goes up, the marginal tax rate you face on further income is greater than the average tax rate you pay on all income.

16. What happens to the elasticity of demand as we move down to the right along a straight-line demand curve?

d. Demand becomes relatively less elastic.

12. Which of the following is not a predictable result from imposition of an excise tax?

d. Producer profits increase.

20. You land a marketing job with Canon after graduation- in the digital camera division. After introducing a new digital camera, you estimate that the price-elasticity of demand for the camera equals 2 and the income-elasticity is equal to 0.5. Furthermore, the cross-price elasticity with a similar Kodak camera is equal to 1.25. Using this information, you would conclude that the product is income-:

d. inelastic. During a period of economic growth the demand curve for the camera will shift outward by a smaller amount than an income elastic good.

11. If a firm experiences economies of scale as it expands production, then:

d. its long-run average total cost curve will be downward sloping in that range.

7. In maximizing net gains, the perfectly competitive firm will seek to:

d. maximize profit.

1. The incidence of a tax is the:

d. measure of who really bears the burden of the tax.

9. An efficient outcome is one in which:

d. no individual can be made better off without making someone else worse off.

6. Which of the following is not one of the standard arguments for restricting imports?

d. preventing an outflow of gold

5. Which cost curve is continually falling as output increases?

d. the average fixed cost curve

2. What is meant by the "deadweight loss caused by a tax?

d. the inefficiency that results from the loss of potentially beneficial transactions

13. One difference between monopoly and perfect competition is that:

d. the marginal revenue curve for a monopolist is downward sloping; for a perfect competitor; it is horizontal.

14. Consumer surplus is positive when:

d. the price the consumer is willing to pay is more than the market price.

13. The sign (positive or negative) on the income elasticity of demand tells us:

d. whether the good is normal or inferior.

4. For any given firm in a monopolistically competitive market, the long-run economic profit tends to be __________ and firms operate to the ____________ of the minimum point on the average total cost curve.

d. zero; left

If both gasoline and jet fuel prices increase significantly due to a war in the middle east. The impact on federal express will be a:

leftward shift in the federal express supply curve.

The upward slope of the supply curve indicates that:

producers supply more of a good when its price increases.

6. What is the name given to the wedge that occurs between the supply price and the demand price of the transacted quantity when a good is subject to quantity restrictions?

quota rent

a price above the equilibrium price will:

result in quantity supplied being greater than quantity demanded.

Suppose that over time, you have observed an increase in the number of people owning digital cameras and a decrease in the price of these cameras. which of the following would account for this?

the supply curve has shifted to the right and the demand curve has remained constant.

Which of the following could account for the fact that ice cream prices have recently increased and that consumption of the ice cream has declined?

the supply of ice cream has decreased

what would be the dominant effect in the market for new homes of an increase in the wages of skilled tradesmen who work in housing construction?

the supply of new homes would shift to the left.

What happens in the market for wheat when dry winter weather causes a poor harvest?

the supply of wheat decreases and the demand remains unchanged

If the supply curve shifts to the left, the demand curve does not change then the equilibrium price:

will increase, and the quantity will decrease.