Final

Question 1

(T/F) A hard freeze in Florida that destroys 50% of the orange crop would cause the orange juice supply curve to shift to the right.

Answer 1

False - this will cause a reduction in the supply so the curve would shift left

Question 2

(T/F) The demand for Hershey’s chocolate bars will be more elastic than the demand for chocolate candy.

Answer 2

True - the more narrow the product classification, the greater the elasticity because you will have a broader range of substitutes

Question 3

(T/F) Bob would have to be paid $100 to be willing to shave his head. Ann would have to be paid $1,000 to be willing to shave her head. George would have to be paid $200 to be willing to shave his head. If I pay $200 to any of the three students willing to shave their heads, the total amount of producer surplus would be $100.

Answer 3

True - Producer surplus is the difference between what someone is actually paid to provide a product and what they had to be paid to be willing to provide something.

Question 4

(T/F) Suppose that asymmetrical information exists in a market and the product in this market has the potential for harmful side effects for consumers. From society’s viewpoints, the market output level is lower than the socially optimal output level.

Answer 4

False - the market output level is higher than the socially optimal output level.

Question 5

(T/F) labor services provided by a firm’s owner without reimbursement to the owner are a good example of an implicit cost of business for a firm

Answer 5

True

Question 6

(T/F) If coke and Pepsi are substitutes in consumption, then when the price of Coke rises, the demand curve for Pepsi will shift right.

Answer 6

True - Pepsi is a substitute for Coke, so therefore when the price of Coke rises, the demand for Pepsi rises

Question 7

(T/F) Azizdecides to enroll in an organic chemistry course. By the end of the semester he ends up failing the course. Despite this negative outcome, an economist, would still say that Aziz was “rational” when making his decision to enroll in this course.

Answer 7

True

Question 8

Ricardo’s PPF for the production of birdhouse (B) and dog houses (D) is represented by the equation B = 8 - 2D. This equation implies that for Ricardo, the opportunity cost of making one dog house is two bird houses.

Answer 8

True

Question 9

(T/F) the minimum wage is binding when placed below the true market equilibrium price.

Answer 9

False - the minimum wage is binding when placed ABOVE the true market equilibrium price

Question 10

(T/F) The practice of scalping generally moves the price in a market away from the true market equilibrium price

Answer 10

False - scalping generally moves the price TOWARD the true market equilibrium price

Question 11

(T/F) The current, federally mandated minimum wage is $7.25 per hour

Answer 11

True

Question 12

The difference between production possibilities that are bowed out and those that are straight is that:

Answer 12

Bowed out production possibilities curves illustrate increasing opportunity cost, where as straight line production possibilities curves illustrate constant opportunity cost

Question 13

You manage a company that has recently opened a production facility in a souther Chinese province. Suppose a new virus has appeared in China, that when caught leaves an individual sick for several weeks. A new vaccine is developed that will protect people in China from the virus. Assuming China’s health care system and vaccine allocation is command-oriented rather than market-oriented, you can expect that…

Answer 13

A central planner will attempt to allocate the vaccine in such a way that everyone will get the vaccine who needs it

Question 14

Suppose the you mange a distillery that produces a high end “designer” beer and a low end “discount” beer. You find that the consumer demand for the high end beer is relatively more inelastic to changes in price than the consumer demand for your low end beer. |Ed| = 0.4 for the designer beer and |Ed| = 1.2 for the discount beer. If your goal is to increase total revenue from beer sales, which of the following would be your best strategy?

Answer 14

Increase the price of your high end beer and decrease the price of your low end beer

Question 15

the marginal cost of consuming each cup of coffee is $1.50, while the marginal benefit derived is $4 for the first cup and decrease by $1 for each cup consumed thereafter. A rational decision maker will consume:

Answer 15

3 cups of coffee

Question 16

Suppose that the government imposes a $100 excise tax on motorcycles. In response to this tax the market price of motorcycles rises by $75. Based on this information, we can conclude that consumers bear ___% of the economic burden tax and that the demand curve is relatively more ____ than the supply curve.

Answer 16

75%, inelastic

Question 17

At a firm’s current output level of 200 units per week, it has 10 employers at a weekly wage of $500 each. Raw materials, which are ordered and delivered daily, cost $1,000 per week. The weekly cost of the firm’s capital is $1,250. Which of the following statements is correct?

Answer 17

Total variable cost is $6,000; total fixed cost is $1,250; total cost is $7,250

Question 18

You need to register for more than one class for next Spring. Your 3 options are economics 202, accounting 201, economics 391. If you decide to take economics 202 then your opportunity cost:

Answer 18

Economics 391 or Accounting 201, whichever class was your second best option

Question 19

Ben lives in Bergovia, where everyone is guaranteed the same amount of food regardless of how much they work. Jerry lives in Krogestan, where one is guaranteed a minimum level of food. What you earn is what you eat. Which property would you expect to see when observing these countries?

Answer 19

The invisible hand is the allocating mechanism in Krogestan

Question 20

All possible combinations of two good that could be produced with a fixed amount of resources can be depicted best by:

Answer 20

The production possibility frontier

Question 21

Which would most likely result in a decrease in the demand for paint?

Answer 21

A reduction in the price of wallpaper, a substitute for paint

Question 22

What happens to the price and quantity of pottery pots if the price of clay rises at the same time that people’s income increases?

Answer 22

The equilibrium price increases and the equilibrium quantity is indeterminate

Question 23

If the quantity demanded is greater than the quantity supplied, the pricing system (through the invisible hand) will respond by:

Answer 23

Raising the product price, therefore decreasing the quantity demanded

Question 24

A pure market economy is unlikely to provide a sufficient amount of a public good like national defense because:

Answer 24

it is generally impossible to withhold national defense from a non paying customer so some people will be free riders

Question 25

When a negative externality is present, then from society’s point of view, the private market provides:

Answer 25

Too much of the product

Question 26

If the supply of coffee falls due to bad weather conditions in coffee-exporting countries then the

Answer 26

Equilibrium price will rise and the equilibrium quantity will fall

Question 27

Which does not help to determine the elasticity of demand?

Answer 27

The length of time it takes producers to make the product

Question 28

Economists have been studying the impact of the recession by looking at how a drop in average income levels has affected the demand for various products. When calculating the income elasticity of demand (Yd) for delivered pizza they find that Yd = -32. This implies that consumers treat delivered pizza as…

Answer 28

An inferior good

Question 29

Short run productions are:

Answer 29

Constrained because some inputs are fixed while others are variable

Question 30

The law of diminishing marginal returns states that:

Answer 30

In the short-run the additional output produced from adding additional inputs must eventually decrease

Question 31

Which of the following is not a possible reason that Economies of Scale might occur?

Answer 31

Organizational complexity, coordination problems, and bureaucratic inefficiencies

Question 32

A firm that must select its profit-maximizing output based on a market-determined price is called a…

Answer 32

Price-taker firm

Question 33

In perfect competition, no individual producer can significantly affect the market price because…

Answer 33

Each producer provides a very small portion of the total market supply

Question 34

Which of the following is not an assumption of the perfectly competitive (price taker) market structure model?

Answer 34

Large economic profits

Question 35

If a monopoly were to emerge in a industry due to the consolidation of several smaller firms, what would be the most likely result?

Answer 35

Prices would increase and output would fall

Question 36

You go to the farmer’s market on Saturday’s because you want tomatoes that are fresher than those you get a Meijer. Farmers sell their vegetables at the market because they have surplus they want to sell for extra money. You act in your own self-interest, the farmers act in their own self-interests, yet you’re both made better off by going to the market. In economic terms, what best describes this situation?

Answer 36

Coordination by the invisible hand

Question 37

Which of the following is a positive economic statement?

Answer 37

an increase in the legal minimum wage would cause the level of unemployment to decline

Question 38

The U.S. economy is an example of:

Answer 38

A mixed economy

Question 39

If a firm is making zero economic profit, it…

Answer 39

Is doing as well as typical firms in other markets

Question 40

When economic efficiency occurs in a market, it implies that…

Answer 40

P = MC at the last unit exchanged, the willingness of consumers to pay is equal to the producer’s opportunity cost for the last unit exchanged, and all activities that generate more benefits than costs were undertaken in that market

Question 41

A binding rent control policy results in all of the following except:

Answer 41

Improvements in the quality of rental housing

Question 42

The profit-maximizing rule scares that a producer should select their output level where:

Answer 42

Marginal revenue is equal to marginal cost

Question 43

The supply of product X is elastic if the price of X rises by:

Answer 43

5% and quantity supplied rises by 7%

Question 44

The deadweight loss that results from the imposition of tax represents:

Answer 44

A loss in consumers and producer surplus since on one receives the surplus and it is not transferred to government

Question 45

A perfectly competitive firm faces a ___ curve while a monopolist faces a ____ demand curve

Answer 45

Perfectly elastic; downward sloping

Question 46

Suppose the market for soybeans is perfectly competitive. A study is published that concludes that consumption of soybeans actually contributes to certain types of cancers. This leads to:

Answer 46

A permanent decrease in demand - the short run profits of a soybean farmer will decrease and the soybean farmer will decrease soybean production in the short run and in the long run, market output will be lower

Question 47

If Q=10, AFC=$5. If Q=20, AVC=$20. The total cost of producing twenty units of output is:

Answer 47

$450

Question 48

Firms form for these reasons

Answer 48

To realized economies of scale, to allow specialization and team production, and to minimize transaction costs

Question 49

Suppose you purchase a news paper company and as the new owner, you learn that your employees take smoking break every 15 minutes and are more likely to be discussing basketball than running the press. Which of the following actions is most likely to be effective in reducing the breaks?

Answer 49

Offer a year end bonus to employees based on the firm’s performance that year

Question 50

In the principal/agent relationships between a manager and cashier at McDonald’s…

Answer 50

The cashier is the agent and the manager is the principal

Question 51

An airline ticket from Seattle to Miami costs $525. A bus ticket is $325. Traveling by plane will take 5 hours, compared with 25 hours by bus. Thus, the plane costs $200 more but saves 20 hours of time. Other things constant, an individual will gain by choosing air travel if, and only if, each hour of her time is valued at more than…

Answer 51

$10 per hour

Question 52

The number of cattle slaughtered every year for meat far exceeds the number of elephants slaughter for their ivory. Despite this, cows can be found everywhere while elephants are on the verge of extinction in some countries. What best describes this difference?

Answer 52

Cows can be privately owned while in many countries elephants cannot

Question 53

(T/F) If there exists asymmetric information about the quality and content of prescription drugs (and as a consequence some might be fakes) then, from the society’s point of view, the out-put is over provided.

Answer 53

True

Question 54

Suppose the actions of the producers of a good impose an external cost which results in the actual market prices of $25 and market output of 1,000 units. How does this outcome compare to the efficient, ideal equilibrium?

Answer 54

The efficient price would be higher than $25 while the efficient output would be less than 1,000 units

Question 55

A neighborhood group intimates a neighborhood watch program. Ella doesn’t take part in the program, but enjoys the greater security. Ella is a…

Answer 55

Free rider

Question 56

Example of a public good

Answer 56

Traffic sign