practice final
Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are
$100, and her economic profits are $25
Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business?
$170
For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is
$2,250
Which of the following will NOT increase the demand for cereal?
-A decrease in the price of cereal. -An increase in the cost of oats.
Refer to Table 3-3. Assume that England and France each has 40 labor hours available. If each country divides its time equally between the production of cheese and wine, then total production is
24 units of cheese and 15 units of wine
Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100 workers. Also suppose that each country completely specializes in producing the good in which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, then each country's maximum consumption of new radios and televisions per year will be
300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland.
Which of the following changes would NOT shift the demand curve for a good or service?
A change in the price of the good or service
Which of the following would NOT be considered a private good?
Cable TV service
Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?
Exactly $2.50
Which of the following statements is NOT correct? a.Government policies cannot improve upon private market outcomes. b. A tax that accurately reflects external costs produces the socially optimal outcome. c. A patent is a way for the government to encourage the production of a good with technology spillovers. d. A tax is a way for the government to reduce the production of a good with a negative externality.
Government policies cannot improve upon private market outcomes.
If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then
Iowa has a comparative advantage in the production of corn
What would happen to the equilibrium price and quantity of lattés if the cost of producing steamed milk, which is used to make lattés, rises?
The equilibrium price would increase, and the equilibrium quantity would decrease
Which of the following is NOT a determinant of the demand for a particular good?
The prices of the inputs used to produce the good
Trade between countries
allows each country to consume at a point outside its production possibilities frontier
Table 3-8 Assume that England and Spain can switch between producing cheese and producing bread at a constant rate. Refer to Table 3-8. Which of the following combinations of cheese and bread could Spain produce in 24 hours? a) 4 units of cheese and 3 units of bread. b) 6 units of cheese and 1 units of bread. c) 7 units of cheese and 1.5 units of bread. d) 3 units of cheese and 3 units of bread.
b) 6 units of cheese and 1 units of bread.
Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good? a. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. b. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. c. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. d. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
c. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
Which of the following is an example of a positive externality? a. A college student buys a new car when she graduates. b. An avid fisherman buys new fishing gear for his next fishing trip. c. The mayor of a small town plants flowers in the city park. d. Local high school teachers have pizza delivered every Friday for lunch.
c. The mayor of a small town plants flowers in the city park.
Because public goods are a. excludable, people have an incentive to be free riders. b. excludable, people do not have an incentive to be free riders. c. not excludable, people have an incentive to be free riders. d. not excludable, people do not have an incentive to be free riders.
c. not excludable, people have an incentive to be free riders.
Which of the following is NOT a characteristic of a public good? a. It is not excludable. b. Its benefits cannot be withheld from anyone. c. It is not diminished or depreciated as additional people consume the good. d. Because it is a free good, there is no opportunity cost.
d. Because it is a free good, there is no opportunity cost.
A decrease in the price of a good will
decrease quantity supplied
Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue
does not change
Private goods are both
excludable and rival in consumption
A monopolistically competitive firm
experiences a zero profit in the long run
The equilibrium quantity in markets characterized by oligopoly is
higher than in monopoly markets and lower in perfectly competitive markets
When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is
inelastic
In order to sell more of its product, a monopolist must
lower its price
A monopolistically competitive industry is characterized by
many firms selling products that are similar but not identical
A monopolistically competitive firm chooses the quantity to produce where
marginal revenue equals marginal cost
The two types of imperfectly competitive markets are
monopolistic competition and oligopoly
If the supply curve is perfectly elastic (horizontal) and a $12 per unit sales tax is imposed on the buyers then the net price received by suppliers will
not decrease.
For a monopolistically competitive firm, at the profit-maximizing quantity of output,
price exceeds marginal cost
Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,
price will exceed marginal cost
When a monopolistically competitive firm raises its price,
quantity demanded declines but not to zero
Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the
quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases
In our simple comparative advantage model, we know that opening trade between one country with high wages and one country with low wages will
raise the standard of living in both countries
Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are
substitute goods
If the price of cola does not affect the amount of beer that people drink in any way then we know that
the cross-price elasticity for cola and beer is zero
You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that
the mayor thinks demand is inelastic, and the city manager thinks demand is elastic
When the government places a production subsidy on a product in an efficient market
without additional information, such as the elasticity of demand for this product, it is impossible to compare the welfare gains of the sellers with the welfare gains of the buyers.