Download Econ 101, section 3, F06

Econ 101, section 3, F06
Schroeter
Final Exam, Blue
Choose the single best answer for each question.
1. A bowed outward shape for a production possibility frontier reflects the fact that
a. the opportunity cost of producing a good decreases as more of the good is produced.
b. technological change is occurring rapidly.
c. starting from an efficient output combination, the economy could produce more of one
good without sacrificing some of the other.
*. resources are specialized; that is, particular resources are better-suited to producing
some goods than others.
2. Market economies are distinguished from other types of economies on the basis of
a. the political affiliation of government officials.
b. the electoral processes used to pick government officials.
*. the ways in which scarce resources are allocated.
d. the ability to produce things of cultural importance.
Questions 3, 4, and 5 are based on the following information. Two small countries, Tama
and Grundy, use their labor resources to produce goods of two types: manufactured goods
and agricultural goods. The table below gives the number of hours of labor needed to
produce one unit of each type of good in each country.
Tama
Grundy
Hours needed to produce one unit of
manufactured goods
agricultural goods
3
1/2
2
1
3. The opportunity cost of 1 unit of manufactured goods in Tama is
*. 6 units of agricultural goods per unit of manufactured goods.
b. 4 units of agricultural goods per unit of manufactured goods.
c. 3 units of agricultural goods per unit of manufactured goods.
d. 2 units of agricultural goods per unit of manufactured goods.
4. Which of the following is true?
a. Grundy has the absolute advantage in the production of manufactured goods.
b. Tama has the absolute advantage in the production of agricultural goods.
c. Grundy has the comparative advantage in the production of manufactured goods.
*. All of the above are true.
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5. Suppose that there are international markets in manufactured goods and agricultural
goods. Tama and Grundy would be able to engage in a mutually beneficial trade with
each other if the trade price of one unit of manufactured goods were
*. 3 units of agricultural goods.
b. 1 unit of agricultural goods.
c. 7 units of agricultural goods.
d. either a or b.
6. Which of the following is NOT a determinant of quantity demanded of a good?
*. the technology of production.
b. the good's own price.
c. the price of substitute or complement goods.
d. consumer income.
7. When a surplus exists in a competitive market
a. price is below the equilibrium level.
b. there is upward pressure on price.
c. quantity demanded exceeds quantity supplied.
*. none of the above.
8. A government-funded study of automotive safety produces the recommendation that
motorists replace their automobile tires more frequently. At the same time, the price of
rubber goes up. As a result, in the competitive market for tires, the equilibrium price will
*. increase and the equilibrium quantity will either increase, decrease, or stay the same.
b. decrease and the equilibrium quantity will either increase, decrease, or stay the same.
c. either increase, decrease, or stay the same, and the equilibrium quantity will increase.
d. either increase, decrease, or stay the same, and the equilibrium quantity will decrease.
9. Which of the following would cause a rightward shift in the demand for a good?
a. a decrease in income (assuming the good is a normal good).
b. a decrease in the good's own price.
c. a decrease in the price of a substitute good.
*. a decrease in the price of a complement good.
10. Other things equal, demand for a good tends to be more elastic
a. the fewer the available substitutes for the good.
b. in the short-run than in the long-run.
c. if the good is a necessity than if it is a luxury.
*. none of the above.
11. In a competitive market, an increase in demand together with an increase in supply
would necessarily result in
*. an increase in equilibrium quantity.
b. an increase in equilibrium price.
c. a decrease in equilibrium quantity.
d. both a and b.
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12. Carrie's Coffeehouse raises its price of large Cafe Mochas from $3.25 to $3.75. As a
result, the average number of large Cafe Mocha's sold each day decreases from 40 to 30.
Over this range of prices, the own-price elasticity of demand (calculated by the "midpoint
method") for Carrie's large Cafe Mochas is
a. -1.48.
b. -1.62.
c. -1.75.
*. -2.00.
13. A price floor is binding when it is set
a. above the market price causing a shortage.
*. above the market price causing a surplus.
c. below the market price causing a shortage.
d. below the market price causing a surplus.
14. When an international crisis leads to a sharp increase in the equilibrium price of
gasoline, the government tries to help consumers by imposing a binding price ceiling on
the market. Which of the following is a likely result of this policy?
a. Gasoline station owners will offer free car washes to try to attract customers.
b. A secondary, illegal market for gasoline will arise in which the price is below the
official ceiling level.
*. Long lines of cars will form at gas stations as motorists try to improve their chances of
purchasing some of the limited supply.
d. All of the above.
15. The effect of an excise tax on the price buyers pay and the size of the deadweight loss
resulting from the tax are two things that depend on demand elasticity. For a given
supply elasticity and a given $/unit amount of the excise tax, as demand becomes more
elastic, the effect on buyers' price becomes
*. smaller and the deadweight loss becomes greater.
b. smaller and the deadweight loss becomes smaller.
c. greater and the deadweight loss becomes greater.
d. greater and the deadweight loss becomes smaller.
16. Consumer surplus is
a. the amount of a good that a consumer is able to buy at a price below equilibrium price.
b. the amount by which quantity supplied exceeds quantity demanded.
*. the price the consumer would have been willing to pay minus the price actually paid.
d. a measure of the value that the consumer attaches to the good.
17. In a competitive market, when supply of the good increases while demand remains
stable, consumer surplus
a. decreases.
*. increases.
c. remains unchanged.
d. may either increase, decrease, or remain unchanged.
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Questions 18 and 19 refer to the following information. The table lists willingness to pay
for the first, second, and third pizzas of the month for three hypothetical consumers. All
three have zero willingness to pay for pizzas after the third of the month.
Alex
Brian
Carlos
First pizza
$18.00
$15.00
$12.00
Second pizza
$13.00
$12.00
$10.00
Third pizza
$10.00
$9.00
$7.00
18. If the price of pizzas were $14.00, the numbers of pizzas purchased each month by
each consumer would be:
*. Alex - 1; Brian - 1; Carlos - 0.
b. Alex - 3; Brian - 1; Carlos - 1.
c. Alex - 2; Brian - 1; Carlos - 1.
d. Alex - 1; Brian - 2; Carlos - 0.
19. If the price of pizzas were to decrease from $14.00 to $11.00, who would experience
the largest gain in consumer surplus?
*. Alex.
b. Brian.
c. Carlos.
d. Alex and Brian would be tied for the largest gain in consumer surplus.
20. Suppose that an excise tax of $3/unit is imposed on a market. With the tax in effect,
the quantity of the good traded will be 1500 units/week. The tax reduces consumer
surplus by $3300/week and it reduces producer surplus by $1650/week. The deadweight
loss of the tax is
a. $2850/week.
b. $1650/week.
c. $850/week.
*. $450/week.
21. A tax on an imported good is called a
a. supply tax.
b. quota.
*. tariff.
d. abatement tax.
22. A small country initially prohibits international trade in corn. When the trade ban is
repealed, the country becomes an exporter of corn. As a result of the repeal of the trade
ban, domestic consumers of corn
a. gain and domestic producers of corn lose.
b. gain and domestic producers of corn gain.
c. lose and domestic producers of corn lose.
*. lose and domestic producers of corn gain.
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Questions 23, 24, and 25 refer to the following figure. It depicts the domestic demand
(Dd) and supply (Sd) of wheat, a homogeneous product, in Econistan, a small country.
(When we say that Econistan is a "small" country, we mean that the price of wheat in the
rest-of-the-world will not be affected by changes in Econistan's trade policy.) The price
of wheat in the rest-of-the-world is $4 per bushel ($4/bu.). Starting from a free trade
situation, the government of Econistan imposes a tariff on wheat of $1 per bushel.
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($/bu.)
Sd
6
5
Dd
4
2
30
45
60
80
100
(million bushels/year)
23. With the tariff in effect, how much wheat will Econistan import?
a. 45 million bushels/year.
b. 40 million bushels/year.
*. 35 million bushels/year.
d. 30 million bushels/year.
24. The deadweight loss that results from this tariff is
a. $10 million/year.
b. $12.5 million/year.
c. $15 million/year.
*. $17.5 million/year.
25. The change in domestic wheat producers' surplus resulting from the tariff will be an
increase of
a. $35 million/year.
*. $37.5 million/year.
c. $40 million/year.
d. $42.5 million/year.
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26. When a negative externality is present in a market, and transaction costs prevent the
affected parties from reaching an efficient solution via Coasian bargaining, the
equilibrium quantity of the good will be
a. equal to the efficient quantity.
b. less than the efficient quantity.
*. greater than the efficient quantity.
d. either b or c, depending on whether the externality is associated with production or
consumption of the good.
Questions 27 and 28 refer to Schedule Y-1. Bernie and Betty are a married couple (using
the "married, filing jointly" tax filing status) with taxable income of $215,765.
Schedule Y-1. Use if your filing status is married, filing jointly.
If your taxable but not over
your tax is
of the amount
income is over
over
$0
$14,600
--------- 10%
$0
14,600
59,400
$1,460 + 15%
14,600
59,400
119,950
8,180 + 25%
59,400
119,950
182,800
23,317.50 + 28%
119,950
182,800
326,450
40,915.50 + 33%
182,800
326,450
---------88,320.00 + 35%
326,450
27. According to Schedule Y-1, Bernie and Betty's marginal tax rate is
a. 28%.
*. 33%.
c. 35%.
d. impossible to determine without knowing Bernie and Betty's total income.
28. According to Schedule Y-1, Bernie and Betty's income tax is
a. $42,615.10.
*. $51,793.95.
c. $60,414.20.
d. $71,202.45.
29. Two firms, A and B, each currently dump 20 tons of chemicals into the local river.
The government has decided to reduce pollution and, from now on, will require a
pollution permit for each ton of pollution dumped into the river. Each firm is initially
issued 10 permits, which it can either use or sell to the other firm. It costs Firm A $100
for each ton of pollution it eliminates before it reaches the river. It costs Firm B $50 for
each ton of pollution it eliminates before it reaches the river. After the two firms buy or
sell pollution permits, we would expect
a. Firms A and B will each dump 10 tons of chemicals into the river.
b. Firm A will no longer pollute and Firm B will not reduce its pollution at all.
*. Firm B will no longer pollute and Firm A will not reduce its pollution at all.
d. Firm A will dump 40 tons of chemicals into the river and Firm B will not pollute at all.
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30. A farmer is calculating the economic profit he earned from the corn crop he raised on
a 40-acre field on his farm. The price of seed is an ________ cost and the rent he could
have earned if he had rented the field for someone else's use is an ________ cost.
a. implicit; implicit.
b. implicit; explicit.
*. explicit; implicit.
d. explicit; explicit.
31. Under which of the following circumstances would an excise tax on beer be
regressive? As household income doubles, average household consumption of beer
a. decreases.
b. remains unchanged.
c. increases by 50%.
*. all of the above.
32. When a firm produces 10 units of output per hour, its average total cost is $4.00/unit
and its marginal cost is $3.00/unit. If the firm were to produce 11 units of output per
hour, average total cost would be approximately
a. $3.00/unit.
*. $3.91/unit.
c. $4.00/unit.
d. $4.09/unit.
33. A firm in a competitive market has the following cost structure:
Output (units/day)
0
1
2
3
4
5
Total cost ($/day)
5
10
12
15
24
40
If the market price is $4/unit, this firm will
a. produce 2 units/day in the short run and the long run.
*. produce 3 units/day in the short run and exit in the long run.
c. produce 4 units/day in the short run and exit in the long run.
d. shut down in the short run and exit in the long run.
34. A competitive firm faces a price of $2.00/unit for its product. It is currently operating
where marginal cost is $2.00/unit and average variable cost is $2.20/unit. To maximize
profit (or minimize loss) in the short-run, the firm should
a. maintain its current output.
b. decrease output but not shut down.
*. shut down.
d. impossible to determine without more information.
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35. At its current output level, a monopolist's price is $5/unit and average total cost,
marginal cost, and marginal revenue are all equal at a value of $3/unit. To maximize
profit (or minimize loss) in the short-run, the monopolist should
a. increase its output level.
b. decrease its output level but not shut down.
*. maintain its current output level.
d. shut down.
36. If a monopolist's demand curve slopes down, at each output level, its
a. price will be less than marginal revenue.
*. marginal revenue will be less than average revenue.
c. price will be less than average revenue.
d. none of the above.
Questions 37 and 38 refer to the following information. A monopolist faces two groups
of potential customers. There are 200 potential customers with a willingness-to-pay
(WTP) of $5 for the first unit of the monopolist's product, and $0 for additional units.
There are also 400 potential customers with a WTP of $3 for the first unit and $0 for
additional units. The monopolist produces the product at zero fixed cost and a constant
marginal cost of $1/unit.
37. If the monopolist were required to charge a uniform price, the price it would charge
and the maximum profit it would earn are
*. $3; $1200.
b. $3; $1600.
c. $5; $2400.
d. $5; $800.
38. If the monopolist were allowed to price discriminate, the maximum profit it could
earn would be
a. $1200.
*. $1600.
c. $2000.
d. $2400.
39. A market structure with only a few sellers, offering similar or identical products, is
called
a. perfect competition.
*. oligopoly.
c. monopoly.
d. monopolistic competition.
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40. Recall the identical product duopoly example we analyzed in lecture. Suppose that
firms 1 and 2 initially produce equal shares of the joint-profit maximizing output level.
From this starting point, as firm 1 increases its output level, while firm 2 maintains its
output level, firm 1's profit
a. decreases, firm 2's profit increases, and joint profit decreases.
b. decreases, firm 2's profit increases, and joint profit increases.
*. increases, firm 2's profit decreases, and joint profit decreases.
d. increases, firm 2's profit decreases, and joint profit increases.
Questions 41 and 42 refer to the following payoff matrix describing a game played
between players "A" and "B." Player A has three strategies: "Up," "Middle," and
"Down." Player B has two strategies: "Left" and "Right." Each cell of the matrix
contains the payoffs to both players in the form: "(payoff to A, payoff to B)."
Player
A's
strategies
Up
Middle
Down
Player B's strategies
Left
Right
(6, 4)
(0, 6)
(4, 3)
(8, 2)
(7, 3)
(2, 2)
41. Which of the following strategy pairs is a Nash equilibrium?
a. (Up, Left).
b. (Middle, Right).
*. (Down, Left).
d. none of the above.
42. Which of the players have dominant strategies?
a. A.
b. B.
c. both A and B.
*. neither A nor B.
43. Which of the following best describes the lesson of the "Prisoners' Dilemma" game?
a. Pursuit of narrow self-interest is always the best strategy.
b. The collective welfare of a game's players is maximized at the Nash equilibrium.
c. Cooperation is individually rational.
*. Cooperation can be difficult to maintain.
44. A firm has a factory of fixed size, hires labor at a fixed wage of $100/worker/day, and
sells output at a fixed price of $5/widget. At its current labor employment level, the firm
is making positive economic profit and its marginal product of labor is 25
widgets/worker/day. To maximize profit in the short-run, the firm should
a. lay off some workers.
b. maintain its current labor employment level.
*. hire more workers.
d. impossible to determine without more information.
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45. If I invest $100 today in a savings account that pays an annual interest rate of 2.5%,
what will be the balance in the account in 5 years?
a. $109.62.
b. $111.05.
c. $112.50.
*. $113.14.
46. Assuming an annual interest rate of 4.5%, what is the present value of $1000 to be
received in 4 years?
*. $838.56.
b. $847.46.
c. $1192.52.
d. $1180.00.
47. Your friend makes the following proposal: "I want to borrow $1000 from you and
I'm willing to pay interest of $100. Give me the $1000 today and I will repay the
principal ($1000) one year from today and the interest ($100) two years from today."
What is the annual rate of interest implicit in the loan that your friend has proposed?
a. 11.12%.
b. 10.00%.
*. 9.16%.
d. 8.69%.
48. I take out an installment loan at an annual interest rate of 9%. The terms of the loan
require repayment of principal and interest in three equal installments, due one year from
today, two years from today, and three years from today. What is the amount of each of
the three installment payments?
a. $726.76.
b. $754.12.
c. $783.61.
*. $790.11
49. The Child Labor Deterrence Act sponsored by Senator Harkin would
a. outlaw child labor in the United States.
b. withhold U.S. foreign aid from countries that allow child labor.
*. prohibit the importation of goods made using child labor.
d. require special labeling for all products produced using child labor.
50. Recall lecture's model of child labor in developing countries. In that model's "bad"
labor market equilibrium
a. only adults work and wages are low.
b. adults and children both work and wages are high.
*. adults and children both work and wages are low.
d. only children work and wages are low.