MICROECON FINAL

Reference: Ref 16-7 (Table: Externalities from Parks) The table shows the marginal social benefit and the marginal social cost of preserving various amounts of land in a city for a public park. Without government intervention, at the amount of land dedicated to the public park the marginal social cost will be:

$0

(Table: The Market for Fried Twinkies) Look at the table The Market for Fried Twinkies. The government decides to tax fried Twinkies at a rate of $0.30 per Twinkie and collect that tax from the producers. According to the table, consumers will pay _____ per Twinkie and buy _____ Twinkies after the tax.

$1.50; 5,000

(Table: Consumer Surplus) Look at the table Consumer Surplus. Assume that each student wants to buy one ticket. If the price of a ticket to see The Nutty Nutcracker is $50 and there is no other market for tickets, total consumer surplus for the five students is:

$105.

Reference: Ref 11-10 (Table: Production Function for Soybeans) Look at the table Production Function for Soybeans. Assume that the fixed input, capital, is 10 acres of land and a tractor, which have a combined cost of $150 per day. The cost of labor is $100 per worker per day. The fixed cost of producing 25 bushels of soybeans is:

$150.

Reference: Ref 14-1 (Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If industry output is 700, each firm's profits will be _____ than they would be at the output of 500, which maximizes industry profit.

$200 less

Figure: The Market for Music Downloads Reference: Ref 7-8 (Figure: The Market for Music Downloads) Look at the graph The Market for Music Downloads. If the government imposes a tax of $3 in this market, the deadweight loss will equal:

$22.50.

4. Reference: Ref 14-4 (Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal and fixed cost of producing crude oil equals zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If firm 1 decides to cheat and increase production by 10 more barrels, it will earn profits of:

$3,500

(Figure: The Market for Music Downloads) Look at the graph The Market for Music Downloads. If the government imposes a tax of $3 in this market, the government will receive tax revenue of:

$30.

Table: Lindsay's Farm The table provides information about the production function for Lindsay's Farm, which uses labor and land to grow its crops. The price of labor is $50 per worker per week and the price of the land is $20 per acre. Reference: Ref 11-31 (Table: Lindsay's Farm) Look at the table Lindsay's Farm. When Lindsay produces 140 units of produce, her total cost is:

$350

If a stock analyst believes there is a 25% probability that the stock price of Dymonatis will be $30 at the end of the year, a 50% probability that it will be $40, and a 25% probability that it will be $50, then the expected value of the stock at the end of the year is:

$40.

Tonya's budget constraint for gasoline (G) and clothes (C) each month can be expressed by the equation G = 100 - 2C. If the price of clothing is $10, the price of gasoline is _____ and the total amount of income spent on both clothing and gasoline each month is _____.

$5, $500

Figure: Consumer Surplus II Reference: Ref 4-24 (Figure: Consumer Surplus II) Look at the figure Consumer Surplus II. If the price of the good is $4, consumer surplus will equal:

$5.

Figure: MSB and MSC of Pollution Reference: Ref 16-10 (Figure: MSB and MSC of Pollution) Look at the figure MSB and MSC of Pollution. Suppose pollution is unregulated. What level of emissions tax would move the level of pollution to the socially optimal level?

$500

Reference: Ref 20-4 (Table: Income and Utility for Whitney) Look at the table Income and Utility for Whitney. Whitney's income next year is uncertain: there is a 40% probability she will make $40,000 and a 60% probability she will make $80,000. The expected value of Whitney's income is:

$64,000.

(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve. The total cost of mowing five lawns is approximately:

$68

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can only charge $20,000 each. The price effect of selling the sixth motor home is:

-$5,000.

Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The slope of Faruq's budget line is equal to:

-5.

(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. If the price of a shirt is $6, the short-run industry supply will be _____ shirts.

0

(Table: Comparative Advantage I) Look at the table Comparative Advantage I. The opportunity cost of producing 1 box of herring for Finland is _____ box(es) of cell phones.

0.2

If farmer Sam MacDonald can produce 200 pounds of cabbages and no potatoes or no cabbages and 100 pounds of potatoes and if he faces a linear production possibility frontier, the opportunity cost of producing an additional pound of cabbage is _____ pound(s) of potatoes.

0.5

(Figure: The Production Possibilities for Two Countries) Look at the figure The Production Possibilities for Two Countries. If Indonesia and Malaysia specialize completely in the production of the good of their comparative advantage, the two nations together will produce _____ tires and _____ radios.

1,200; 1,600

Reference: Ref 14-4 (Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal cost and fixed cost of producing crude oil equal zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If both firms decide to cheat and produce 10 more barrels each, industry output will be _____ barrels.

100

Reference: Ref 3-16 (Table: The Demand for Chocolate-Covered Peanuts) Look at the table The Demand for Chocolate-Covered Peanuts. If George, Barbara, and Dan are the only three buyers in the market and the price of a bag of chocolate-covered peanuts is $0.80, the total market quantity demanded is _____ bags per month.

105

Figure: The Production Possibility Frontiers for Jackson and Tahoe Reference: Ref 8-4 (Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. In autarky, Jackson produces and consumes 30 head of cattle and 80 bushels of wheat, while Tahoe produces and consumes 80 head of cattle and 60 bushels of wheat. Each nation specializes completely, based on comparative advantage, and the price of 1 head of cattle equals the price of 2 bushels of wheat. If Jackson exports 120 bushels of wheat to Tahoe, then the new consumption point for Tahoe after trade is _____ bushels of wheat and _____head of cattle.

120; 140

(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor. What is the optimal level of production?

15 slices

Adam has a monthly income of $20 that can be spent on books (B) and pencils (P). The price of a book is $5 and the price of a pencil is $0.50. Which of the following bundles of books and pencils is UNAFFORDABLE?

2 books and 30 pencils

The price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag. You have $10 to spend on both goods. The maximum number of boxes of popcorn that you can purchase is:

20.

Figure: The Demand for Shirts Reference: Ref 6-11 (Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The price elasticity of demand for the segment BC, by the midpoint method, is:

3.

The United States must give up the production of 500 bicycles to produce 20 additional tractors. The opportunity cost of producing 100 bicycles is _____ tractor(s).

4

Figure: City with Two Polluters Reference: Ref 16-6 (Figure: City with Two Polluters) Look at the figure City with Two Polluters. If the government imposed an emissions tax of $400, firm A would produce _____ tons of emissions and firm B would produce _____ tons of emissions.

400; 1,200

Reference: Ref 14-17 (Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. For simplicity, assume that the marginal cost of producing crude oil is zero. There are only two producers of crude oil, and they cannot cooperate. But they play this game every week, each player has a tit-for-tat strategy, and the other player knows this. When both firms use a tit-for-tat strategy, firm 1 will produce _____ barrels, and firm 2 will produce _____ barrels.

40; 40

Figure: Production Possibility Frontier Curve for Tealand Reference: Ref 2-6 (Figure: Production Possibility Frontier for Tealand) Look at the figure Production Possibility Frontier for Tealand. Tealand is producing at point C on its production possibility frontier. What is the opportunity cost of increasing the production of tea from 20 million cups to 30 million cups?

5 million scones

Reference: Ref 8-5 (Table: The Production Possibilities for Tractors and Crude Oil) Look at the table The Production Possibilities for Tractors and Crude Oil. In Mexico the opportunity cost of producing 150,000 barrels of crude oil is _____ tractors.

50

Reference: Ref 10-13 (Table: Utility from Burgers and Milkshakes) Look at the table Utility from Burgers and Milkshakes. David's marginal utilities for milkshakes and burgers are given in the table. The price of milkshakes is $2, and the price of burgers is $5. If David's income is $10, to maximize his utility, he buys _____ shake(s) and _____ burger(s).

5; no

Scenario: Buying Shares Geordie is considering buying shares in two companies, Apple and Microsoft. If he invests $1,000 in Apple, there is a 40% probability that his investment will be worth only $800 and a 60% probability that it will be worth $1,200 at the end of a year. If he invests $500 in Apple, there is a 40% probability that his investment will be worth $400 and a 60% probability that it will be worth $600 at the end of a year. The corresponding numbers for investment in Microsoft are identical. Reference: Ref 20-12 (Scenario: Buying Shares) Look at the scenario Buying Shares. The probability that Geordie will make a gain is _____ if he invests $1,000 in either Apple or Microsoft. The probability that he will make a gain is _____ if he invests $500 apiece in Apple and in Microsoft.

60%; 36%

Figure: The Production Possibility Frontiers for Jackson and Tahoe Reference: Ref 8-4 (Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. In autarky, Jackson produces and consumes 30 head of cattle and 80 bushels of wheat, while Tahoe produces and consumes 80 head of cattle and 60 bushels of wheat. If both nations specialize completely in the good of their comparative advantage and Jackson exports 120 bushels of wheat to Tahoe in exchange for 60 head of cattle, then the new consumption point for Jackson after trade is _____ bushels of wheat and _____ head of cattle.

80; 60

Smallville has a linear production possibility frontier in the production of good X and good Y. It can produce 6 of X per hour or 8 of Y per hour. Suppose it has 240 hours of labor and divides labor hours equally between production of good X and good Y. What is the MAXIMUM amount of good Y it can produce?

960

(Problem 1c). Which of the twelve basic principles of economics is at work in the following situation? The student union provides a website on which departing students can sell items such as used books, appliances, and furniture rather than giving them away to their roommates as they formerly did.

A. Markets usually lead to efficiency.

Which of the twelve basic principles of economics is at work in the following situation? After a hurricane did extensive damage to homes on the island of St. Crispin, homeowners wanted to purchase many more building materials and hire many more workers than were available on the island. As a result, prices for goods and services rose dramatically across the board.

A. Overall spending sometimes gets out of line with the economy's productive capacity.

(Problem 12a). In the following situation, first consider in what sense the market is going wrong, then determine how government intervention could improve society's welfare by changing people's incentives. Pollution from auto emissions has reached unhealthy levels.

A. The market has resulted in too much pollution. The government could tax fuel or tax cars that get low mileage, or it could subsidize cleaner fuels or newer technologies like hybrid cars.

(Problem 5c). In the following example, state how the principle of marginal analysis is used to make a decision. Choose the correct answer to fill in the blank. People will eat more bags of chips if the benefit (hunger is satisfied) is ____ the cost (additional calories).

A. greater than

(Problem 7a). The Hatfield family lives on the east side of the Hatatoochie River, and the McCoy family lives on the west side. Each family's diet consists of fried chicken and corn-on-the-cob, and each is self-sufficient, raising their own chickens and growing their own corn. Under which conditions would the following be true? The two families are made better off when the Hatfields specialize in raising chickens, the McCoys specialize in growing corn, and the two families trade. This is true if:

A. the Hatfields (compared to the McCoys) are better at raising chickens and the McCoys (compared to the Hatfields) are better at growing corn.

Figure: Consumer Surplus I Reference: Ref 4-23 (Figure: Consumer Surplus I) Look at the figure Consumer Surplus I. If the good is free, consumer surplus equals the area:

AQ30.

A firm produces at the output level at which its average total costs are minimized. At this output level, its average total costs are equal to all of the following EXCEPT:

AVC.

In 2012, Hurricane Sandy caused massive destruction to the northeast United States. Tens of thousands of people lost their homes and possessions. Even those who weren't directly affected by the destruction were hurt because businesses failed or contracted and jobs dried up. Which one of the principles of economy-wide interaction can best explain how government intervention can help in this situation?

B. Government policies can change spending.

Liza needs to buy a textbook for the next economics class. The price at the college bookstore is $65. One online site offers it for $55 and another site, for $57. All prices include sales tax. The accompanying table indicates the typical shipping and handling charges for the textbook ordered online. Given all the relevant choices for this student, which of these options should the student choose?

B. cannot be determined; the answer depends on the opportunity cost of the student's time

(Figure: Budget Lines for Oranges and Apples) Look at the figure Budget Lines for Oranges and Apples. For some time, Antonio has had $5 per month to spend on oranges and apples. The price of an orange is $0.50 and the price of an apple is $0.25. Which of the charts shows what will happen to his budget line if his income decreases to $2.50?

C

(Problem 7b). The Hatfield family lives on the east side of the Hatatoochie River, and the McCoy family lives on the west side. Each family's diet consists of fried chicken and corn-on-the-cob, and each is self-sufficient, raising their own chickens and growing their own corn. Under which conditions would the following be true? The two families are made better off when the McCoys specialize in raising chickens, the Hatfields specialize in growing corn, and the two families trade.

C. The McCoys (compared to the Hatfields) are better at raising chickens and the Hatfields (compared to the McCoys) are better at growing corn.

(Problem 1j). Which of the twelve basic principles of economics is at work in the following situation? You are better at performing lab experiments, and your lab partner is better at writing lab reports. So the two of you agree that you will do all the experiments, and she will write up all the reports.

C. There are gains from trade.

(Figure: The Market for Laptop Sleeves) Look at the figure The Market for Laptop Sleeves. Assume that S and D are the domestic supply and demand curves and the world price is PW. Identify the area of deadweight loss when a tariff raises the domestic price from the world price to PT.

D + F

A rent ceiling must be set above the equilibrium rent to be binding.

False

Although they cost more than $200,000 when they were issued in the 1930s, the New York taxicab medallions are relatively inexpensive today, selling for around $3,000.

False

Holly and Emily both have a bachelor's degree in nursing from the same college. Both have been nurses for eight years. Holly works from 11 P.M. until 7 A.M., and Emily works from 7 A.M. until 3 P.M. Holly's salary is $1,000 per month higher than Emily's salary. This is an example of an efficiency wage disparity.

False

In monopolistic competition, the primary source of product differentiation is price competition.

False

Since a monopolistically competitive firm has the same long-run profits as a perfectly competitive firm, both types of industries are efficient.

False

Suppose the state of Mississippi sets a price floor in the market for cotton. If the floor is set below the market-clearing price of cotton, the floor will cause a surplus of cotton.

False

entry by other firms will not occur. The law enacted in 1890 to break up existing monopolies and prevent the formation of new ones was the Glass-Steagall Act.

False

Firms that engage in discrimination are usually more profitable than firms that don't discriminate.

False.

Which of the following is a normative statement?

Government has grown too large and should be reduced.

Reference: Ref 4-1 (Table: Willingness to Pay for Basketball Sneakers) The table Willingness to Pay for Basketball Sneakers shows each player's willingness to pay for basketball sneakers. Assume that each player wants to buy at most, one pair of sneakers. If the price of basketball sneakers is $145, which player will purchase sneakers?

Jamichael

If at a given quantity _____, the decision maker should do _____ of the activity.

MB < MC; less

Which of the following is TRUE?

MR = MC is a profit-maximizing rule for any firm.

Figure: Profits in Monopolistic Competition Reference: Ref 15-5 (Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic Competition. A negative economic profit (or economic loss) is earned if the profit-maximizing price is _____ in panel _____.

O; (C)

(Figure: Monopoly Profits in Duopoly) Suppose the duopoly industry illustrated in the figure Monopoly Profits in Duopoly produces a perishable good. If the industry is perfectly competitive, the market price will likely end up being _____, and the combined economic profits of the firms will be _____.

P1; zero

Figure: Computing Monopoly Profit Reference: Ref 13-5 (Figure: Computing Monopoly Profit) Look at the figure Computing Monopoly Profit. At the profit-maximizing output, total cost is:

P20QF.

Figure: The Market for Candy Reference: Ref 3-20 (Figure: The Market for Candy) Look at the figure The Market for Candy. Equilibrium occurs at a price of _____, and the equilibrium quantity is equal to _____.

P2; Q3

Efficiency exists when there is no way to make someone better off without making someone else worse off. Reference: Ref 20-3 (Table: Utility for Terri and Mary) Look at the table Utility for Terri and Mary. Each has an income of $300. _____ is more risk-averse because _____ has a _____ drop in total utility if income were to fall by $100.

Terri; Terri; larger

Which of the following is a positive statement?

The poverty rate is 14%.

Suppose you manage a corner grocery store. If peanut butter is an inferior good, what do you suppose would happen to the price and quantity sold of peanut butter as incomes fell during a recession?

The price and quantity would both increase.

Figure: Tom's Production Possibilities Reference: Ref 2-7 (Figure: Tom's Production Possibilities) Look at the figure Tom's Production Possibilities. The opportunity cost for Tom to move from point C on the curve to point A is:

There is no opportunity cost.

Economies of scale are often the result of increased specialization, which can occur when output levels increase.

True

Efficiency exists when there is no way to make someone better off without making someone else worse off.

True

Externalities affect the welfare of others not involved in the production or consumption of a good or service in ways that markets don't take into account.

True

For a public good, the marginal social benefit will be higher than any individual's marginal benefit of consumption.

True

If the demand curve for clams is downward-sloping and the supply curve is upward-sloping, a quota that is set above the equilibrium quantity will have no effect on the market.

True

If the state of Minnesota established a price floor in the market for pumpkins that was double the current market-clearing price, this would lead to an inefficient number of pumpkins sold in Minnesota.

True

Risk-averse individuals are willing to make deals that reduce their income to reduce their risk.

True

Scott operates a business that takes people on boat tours in Crystal River, Florida. The amount of fuel Scott uses each day is a variable input.

True

The fact that firms in a monopolistically competitive industry are competing for a limited market is called competition among sellers.

True

To increase profits with price discrimination, different groups of an oligopolist's customers must respond differently to prices of the good.

True

Which of the following is an activity generating a negative externality?

Your next-door neighbor mows the lawn at 6 A.M.

If the estimated price elasticity of demand for foreign travel is 4:

a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.

Bluefin tuna travel in schools throughout the world's oceans. Fishing boats from many nations harvest bluefin tuna as the schools migrate through their national waters. The schools of bluefin tuna are best described as:

a common resource.

If the demand for golf is unit-price elastic and your local public golf course increases the greens fees for using the course, you expect:

a decrease in the amount of golf played on the course.

When the demand for automobiles is high, the demand for workers who build automobiles is high. This relation between the market for automobiles and the market for the labor that builds automobiles is why demand in a factor market is called:

a derived demand.

(Scenario: Diversification) Look at the scenario Diversification. If Morris invests all of his money in the sunglass company, what is his expected gain or loss?

a gain of $2,500

Which of the following is an example of an artificially scarce good?

a pay-per-view boxing match on cable television

Sunk costs:

affect economic profit.

Figure: The DVD Rental Market Reference: Ref 3-8 (Figure: The DVD Rental Market) Look at the figure The DVD Rental Market. At a rental price of $3, there will be:

an excess demand of 40 DVD rentals.

1. A beneficial technological change is developed in the production of cranberries. At the same time, scientists discover that cranberries have significant health benefits. This will result in:

an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of cranberries.

The demand curve for running shoes has shifted to the right. What could have caused it?

an increase in the income of buyers of running shoes

If the demand for golf is price-inelastic and your local public golf course increases the greens fees for using the course, you expect:

an increase in total revenue received by the course.

Pigouvian taxes:

are designed to reduce external costs.

Variable cost divided by the quantity of output produced is _____ cost.

average vaiable

Consumer surplus is represented by the area _____ the demand curve and _____ the market price.

below; above

Private information leads _____ to expect hidden problems in items offered for sale, leading to _____ prices and to the best items being kept off the market.

buyers; low

Suppose the Jamaican government 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.

The best example of a common resource is:

clean water.

If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered:

complementary goods

Figure: The Profit-Maximizing Firm in the Short Run Reference: Ref 12-10 (Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. Which of these curves is the AVC curve?

curve O

An excise tax causes inefficiency if the number of transactions in a market is reduced as a result of the tax. Because the tax discourages mutually beneficial transactions, there is a(n) _____ from a tax.

deadweight loss

For which of the following decisions would marginal analysis be relevant?

deciding how much to spend on a summer vacation

An inefficient allocation of resources will occur when:

decision makers are not faced with the full benefits and costs of their choices.

Table: Pumpkin Market Quantity of Pumpkins (Table: Pumpkin Market) There are two consumers, Andy and Ben, in the market for pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. If Ben buys one more pumpkin and Cindy sells one fewer pumpkin than in equilibrium, total surplus will _____ by _____.

decrease; $3

(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases one, two, or three mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases three mixers, her average total cost _____ in the range of output between 100 and 400 cakes.

decreases

Airlines that engage in price discrimination charge lower prices to vacation travelers because their _____ is more _____ than that of other travelers.

demand; elastic

A small college employs two economists. Rob has been employed by the college for 15 years, and Nasrin has been employed for 1 year. Rob's salary is significantly higher than Nasrin's, although both have their doctoral degrees in economics. Each professor averages one publication per year, and both are excellent teachers. Given this information, the wage difference is best explained by:

differences in human capital.

If those who are most willing to bear risk end up bearing it, then we say that the insurance market is:

efficient.

An emissions tax will:

ensure that the marginal benefit of pollution is equal for all sources of pollution.

In a monopoly in the long run:

entry by other firms will not occur.

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 _____ of firms shifts the firm's demand and marginal revenue curves _____ the firm's level of output and _____ the price it can charge until price equals average total cost.

entry; leftward, decreasing; decreasing

When the government attempts to reduce the noise from airplanes by restricting the noise level from a jet engine to less than 50 decibels, it is using a(n):

environmental standard.

In the circular-flow diagram the flow of money going into each sector or market is _____ the flow of money coming out of that market or sector.

equal to

Activities that generate external costs will likely be carried out at levels that _____ those that would be efficient.

exceed

Figure: Profit Maximization in Monopolistic Competition Reference: Ref 15-13 (Figure: Profit Maximization in Monopolistic Competition) In panel (B) of the figure Profit Maximization in Monopolistic Competition, the profit-maximizing price is P2 and the ATC curve is tangent to the new demand curve. The portion of the ATC that lies to the right of the tangency and continues down to the intersection of MC with ATC indicates:

excess capacity.

An important assumption underlying the marginal productivity theory of income distribution is that:

factor markets are perfectly competitive.

Reference: Ref 11-12 (Table: Output and Marginal Cost) Look at the table Output and Marginal Cost. After graduation you achieve your dream of opening an art shop that specializes in selling mud statues. How many statues should you produce to minimize your average variable costs?

four

Reference: Ref 19-5 (Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is a price-taking farmer who produces corn. Assume the wage rate for workers is $125 and the price per bushel of corn is $10. To maximize profits Laura should employ _____ workers.

four

The tendency of people to avoid paying for a good's benefits when the benefits can be obtained for free is called the _____ problem.

free-rider

If marginal costs remain constant, the marginal cost curve is:

horizontal.

A monopolistic competitor will advertise to:

increase demand for its product.

An agricultural market price support policy establishes a binding price floor, which:

increases the price received by farmers.

The law of demand states that other things equal, as the price:

increases, the quantity demanded will decrease.

If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by:

increasing production.

Which of the following taxes is the largest source of government revenue?

individual income

An externality is said to exist when:

individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account.

According to the Heckscher-Ohlin model, Brazil will have a comparative advantage in oranges if the factors _____ in the production of oranges are _____.

intensive; abundant

No individual is willing to pay for the efficient quantity of a public good, because the marginal benefit to an individual _____ the marginal social benefit.

is less than

Electricity is included in the rent at your dorm. Some residents in your dorm leave lights, computers, and appliances on when they are not in their rooms. This situation:

is not efficient

The job creation argument for protection against free trade:

is that keeping out foreign imports allows the goods and services to be produced by domestic workers.

State governments levy excise taxes on cigarettes because:

it is an easy way to raise tax revenue while discouraging smoking.

Scenario: Monopolistically Competitive Firm For a monopolistically competitive firm, Q = 160 - P; MC = 20 + 2Q; and TC = 20Q + Q2 + 20. Reference: Ref 15-17 (Scenario: Monopolistically Competitive Firm) Given the information in the scenario Monopolistically Competitive Firm, in the long run, this firm can expect that:

its economic profits will decrease to zero.

The efficient level of pollution is the quantity at which:

its total benefits to society equal its total costs to society.

An individual gets 5 units of utility from one slice of pizza and 9 units of utility from two slices of pizza. The principle of diminishing marginal utility implies that the total utility from three slices of pizza will be _____ units of utility.

less than 13

Marginal revenue for a monopolist is:

less than price.

Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should:

lower prices in South Carolina and raise prices in Alabama.

The change in total cost resulting from a one-unit change in quantity is _____ cost.

marginal

When a firm has diminishing marginal returns:

marginal product is falling but is likely to be still positive.

Because most communities have a large number of similar but not identical substitutes, the market for financial planners is best considered to be:

monopolistically competitive.

If the probability that one person will develop a health problem is greater than that of another person and if they buy insurance from the same provider, most likely the person with a higher probability will pay:

more than the person with the lower probability.

For a firm producing at any level of output LOWER THAN the most profitable one, an increase in output adds:

more to total revenue than to total cost.

If the marginal social benefit received from a good is less than the marginal opportunity cost of production:

no change in production can improve society's well-being.

Whenever a species is threatened with extinction, it is likely that:

no one has exclusive property rights to it.

National defense and e-books are similar in that both are _____, but they differ in that national defense is _____, while e-books are not.

nonrival in consumption; nonexcludable

A monopolist with a linear demand curve will:

not produce in the inelastic portion of its demand curve.

Efficient production occurs when the economy is:

operating on its production possibility frontier.

The substitution effect always involves a change in consumption in the _____ direction as (to) the _____ change.

opposite; price

Which of the following is most likely to have a vertical supply curve?

paintings by Van Gogh

The competitive model assumes all of the following EXCEPT:

patents and copyrights that serve as barriers to entry into the industry.

When Joe's income is $100 per week, he spends $20 per week on pizza. When his income rises to $110 per week, he spends $25 per week on pizza. If the price of pizza remains constant, this information implies that for Joe:

pizza is a normal good and a luxury.

External benefits are associated with the production of batteries. Without government regulation, the market will:

price batteries at less than the marginal social benefit.

A maximum price set below the equilibrium price is a:

price ceiling.

The burden of a tax on a good is said to fall completely on the consumers if the:

price paid by consumers for the good increases by the amount of the tax.

Figure: The Demand for Notebook Computers Reference: Ref 6-3 (Figure: Demand for Notebook Computers) Look at the figure The Demand for Notebook Computers. The change in total revenue resulting from a change in price from P to T suggests that demand is:

price-elastic.

Bob runs a pedicure business in a perfectly competitive industry. He knows that he will break even if the price of pedicures is $15 but that he will have to shut down if the price is $11. If the market demand in the industry is P = 30 - (0.2)Q and the market supply is P = (0.2)Q, in the short run, Bob will:

produce but just break even.

Substitutes in production suggest that a producer with a fixed set of resources initially will need to reduce production of one good when the producer:

produces more of the other good.

Households buy goods and services in the _____ markets.

product

Imports are good and services that are:

purchased from another country

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of java. For these customers, coffee is differentiated by:

quality

(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers. If the equilibrium market wage rate for bricklayers rises from $80 to $100, the _____ bricklayers will _____.

quantity demanded of; fall

3. If the price of a commodity increases, you can expect the:

quantity supplied to increase.

An efficient way to finance the provision of city services such as street cleaning would be to charge all city residents a lump-sum tax. Such a tax would be:

regressive.

Brianna and Jess must pay an income tax. Both Brianna and Jess pay $1,000 in taxes each year, but Brianna earns $20,000 and Jess earns $10,000. From this information, you can infer that this tax is:

regressive.

(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor and assume that marginal cost is constant in the intervals of production. The marginal cost for pizza production:

remains constant.

The price elasticity of demand measures the:

responsiveness of the change in quantity demanded to a change in price.

General Snacks is a typical firm in a market characterized by monopolistic competition. Initially, the market is in long-run equilibrium, and then there is an increase in the market demand for snacks. In the short run the price of snacks will _____ and the output of snacks will _____.

rise; rise

An economy moves from autarky to free international trade. In the import sector consumer surplus _____, producer surplus _____, and the economy as a whole _____.

rises; falls; gains

By offering a menu of policies with different premiums and deductibles, insurance companies can _____ their customers; for example, a low-risk customer will often buy insurance with a lower _____ but a higher _____ than a high-risk customer.

screen; premium; deductible

Lucy decides to buy car insurance because:

she wants to decrease her exposure to risk.

Figure: The Market for Economics Textbooks Reference: Ref 5-7 (Figure: The Market for Economics Textbooks) Look at the figure The Market for Economics Textbooks. At a price ceiling of $40, the market outcome would be a _____ of _____ textbooks.

shortage; 30

Figure: Demand, Revenue, and Cost Curves Reference: Ref 13-11 (Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue, and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the government regulated the figglenut market by setting a price ceiling of $40, Figglenuts-R-Us might:

shut down in the long run.

In practice, insurance companies faced with adverse selection use _____ to deal with it.

signals

If the marginal benefit received from consuming a good is greater than the marginal cost of production:

society's well-being can be improved if production increases.

The evidence suggests that taken collectively, taxes in the U.S. economy are:

somewhat progressive.

In terms of labor supply, the substitution effect of a higher wage causes a(n):

substitution of work for leisure.

Assume that Stan just received a promotion and raise. In terms of labor supply, the substitution effect of a higher wage will lead him to:

supply more hours of labor.

The _____ tomatoes will decrease if fertilizer prices rise.

supply of

When firms in a particular industry informally agree to charge the same price as the largest firm in that industry, it is called:

tacit collusion.

Although horses were once a very important factor of production, the development of automobiles and other machinery reduced the demand for their use. This is an example of:

technological progress shifting the demand for horses to the left.

Figure: Marginal Benefits and Marginal Costs Reference: Ref 9-10 (Figure: Marginal Benefits and Marginal Costs) Look at the figure Marginal Benefits and Marginal Costs. More time spent studying economics adds points to economics scores (MB) but subtracts points from accounting scores (MC). At four hours of study, Claudia will maximize her benefit from study time because:

the difference between total benefits and total costs is maximized.

Monopolistic competitors often hire a celebrity spokesperson to advertise their product. One reason such advertising works is that:

the fact that a firm is willing to pay the large fees associated with celebrity advertising signals consumers that it is a major company and that it is therefore likely to have a reliable product.

(Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule. To the left of point C (e.g., at q1):

the firm is not maximizing profits.

A persistent shortage may occur if:

the government imposes a price ceiling.

Oligopoly first became an issue in the United States when:

the growth of railroads made possible a national market for goods in the second half of the nineteenth century.

(Table: Cherry Farm) Look at the table Cherry Farm. If the price is $4 per pound:

the industry is in long-run equilibrium.

Tacit collusion is difficult to achieve in practice:

the larger the number of firms in the industry.

Assume a monopoly is currently earning economic profits. If a change in fixed cost raises average total cost above the demand curve:

the monopoly will go out of business.

The implicit cost of capital is:

the opportunity cost of capital used by a business.

Assume that Siri is consuming the utility-maximizing quantities of pork and chicken. We can conclude that:

the ratio of the marginal utility to price is the same for pork as it is for chicken.

The marginal product of labor is:

the slope of the total product of labor curve.

We can measure total consumer surplus for good X as:

the sum of the individual consumer surpluses for all buyers of X.

Tacit collusion is relatively easy for oligopolists if:

there are only a few firms in the industry.

For a nonexcludable good like national defense, the private market will lead to _____ of the good.

too little production

A firm's total output times the price at which it sells that output is _____ revenue.

total

The amount by which an additional unit of a factor increases a firm's _____ during a period is the _____.

total revenue; value of the marginal product

There are benefits resulting indirectly from pollution because:

we obtain goods and services we enjoy even though in the process we pollute.

The substitution effect of a price change is described by the statement that:

when the price of canning jars falls, consumers will substitute these lower-priced canning jars for higher-priced goods.

Figure: The Value of the Marginal Product Curve Reference: Ref 19-7 (Figure: The Value of the Marginal Product Curve) In the figure The Value of the Marginal Product Curve, if a technological advance makes labor more productive and everything else stays the same, then the profit-maximizing quantity of labor:

will increase.

If the price of a good rises along an upward-sloping supply curve, then producer surplus:

will increase.

1. When goods are rival in consumption and excludable, markets:

will produce an efficient quantity of the good.