Download Econ 101, Sections 4 and 5, S09

Econ 101, Sections 4 and 5, S09
Schroeter
Makeup exam
Choose the single best answer for each question. Do all of your scratch work in the
margins.
1. The adage, "There is no such thing as a free lunch," means
a. even people on welfare have to pay for food.
b. the cost of living is always increasing.
*. people face tradeoffs.
d. rational people think at the margin.
2. When a production possibilities frontier is bowed outward, the opportunity cost of
producing an additional unit of a good
*. increases as more of the good is produced.
b. decreases as more of the good is produced.
c. remains constant as more of the good is produced.
d. may increase, decrease, or remain constant as more of the good is produced.
Questions 3 and 4 are based on the following information. Two small countries,
Allamakee and Chickasaw, 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.
Allamakee
Chickasaw
Hours needed to produce one unit of
manufactured goods
agricultural goods
2.0
0.5
1.0
0.8
3. Which of the following is true? The opportunity cost of one unit of
a. manufactured goods in Allamakee is 2 units of agricultural goods.
b. manufactured goods in Chickasaw is 0.8 units of agricultural goods.
*. agricultural goods in Allamakee is 0.25 units of manufactured goods.
d. more than one of the above is true.
4. Which of the following is true?
a. Chickasaw has the comparative advantage in the production of agricultural goods.
b. Chickasaw has the comparative advantage in the production of manufactured goods.
c. Allamakee has the comparative advantage in the production of agricultural goods.
*. more than one of the above is true.
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5. Which of the following would cause a leftward shift in the demand for a good?
a. an increase in the good's own price.
b. an increase in the price of a substitute good.
*. an increase in average household income, assuming the good is an inferior good.
d. a decrease in the price of a complement good.
6. What would happen to equilibrium price and quantity in the competitive market for
cotton shirts if the wages paid to workers in the shirt factories increased? The
equilibrium price of shirts would
a. increase and the equilibrium quantity of shirts would increase.
*. increase and the equilibrium quantity of shirts would decrease.
c. decrease and the equilibrium quantity of shirts would increase.
d. decrease and the equilibrium quantity of shirts would decrease.
7. In a competitive market, simultaneous increases in both demand and supply will
a. increase equilibrium price and have an ambiguous effect on equilibrium quantity.
b. decrease equilibrium price and have an ambiguous effect on equilibrium quantity.
*. increase equilibrium quantity and have an ambiguous effect on equilibrium price.
d. decrease equilibrium quantity and have an ambiguous effect on equilibrium price.
8. For a good that is a necessity, demand
*. tends to be inelastic.
b. tends to be elastic.
c. is unit elastic.
d. is perfectly elastic.
9. For which of the following goods is demand likely to be most elastic?
a. clothing.
b. blue jeans.
*. Levis blue jeans.
d. All three are likely to have roughly the same demand elasticity because they are all
related.
10. When Sam the auto mechanic charged $15 for an oil change, he averaged 35 oil
changes per month. After raising his price for an oil change to $18, he averaged only 25
oil changes per month. Over this price range, the elasticity of demand for Sam's oil
changes (calculated by the midpoint method) is
a. -0.42.
b. -0.55.
*. -1.83.
d. -2.40.
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11. Suppose the government imposes a price ceiling on the competitive market for
gasoline. Which of the following events could transform that price ceiling from one that
is binding into one that is not binding?
a. The price of crude oil (an input in the production of gasoline) increases.
*. As automobile fuel efficiency increases, the demand for gasoline decreases.
c. A hurricane temporarily shuts down some of the refineries producing gasoline.
d. None of the above.
12. If a $1.00/unit excise tax is imposed on a competitive market with elastic demand and
inelastic supply, the price sellers receive (net of the tax)
a. will decrease by $1.00/unit.
*. will decrease by more than $0.50/unit but less than $1.00/unit.
c. will decrease by less than $0.50/unit.
d. will remain unchanged.
13. Willingness to pay
*. measures the value that a buyer places on a good.
b. is the amount a seller receives for a good minus the minimum amount the seller is
willing to accept.
c. is the buyer's consumer surplus minus the amount the buyer actually pays for the good.
d. is the sum of consumer and producer surplus.
14. Randy's willingness to pay for the first, second, and third pizzas of the month are $20,
$16, and $12, respectively. He has zero willingness to pay for pizzas after the third of the
month. If the price of pizzas were $15, Randy would
a. buy 1 pizza per month and have consumer surplus of $5/month.
*. buy 2 pizzas per month and have consumer surplus of $6/month.
c. buy 2 pizzas per month and have consumer surplus of $10/month.
d. None of the above.
15. When an excise tax is imposed on the competitive market for a good, it raises the
price consumers pay (inclusive of the tax) by $1.50/unit, it reduces the price sellers
receive (net of the tax) by $1.00/unit, and it reduces the quantity bought and sold by 500
units/week. Based on the assumption that the demand and supply curves are straight
lines, the deadweight loss of the tax is
a. $500/week.
*. $625/week.
c. $750/week.
d. $1250/week.
16. When a country that exported a particular good abandons its free-trade policy and
prohibits international trade,
a. consumer surplus increases and total surplus increases in the market for that good.
*. consumer surplus increases and total surplus decreases in the market for that good.
c. consumer surplus decreases and total surplus increases in the market for that good.
d. consumer surplus decreases and total surplus decreases in the market for that good.
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17. A country currently prohibits international trade in soybeans and the domestic price
of soybeans is above the world market price. If the trade ban were lifted, the country
would become
a. an importer of soybeans and domestic soybean producers would benefit.
*. an importer of soybeans and domestic soybean producers would lose.
c. an exporter of soybeans and domestic soybean producers would benefit.
d. an exporter of soybeans and domestic soybean producers would lose.
18. Which of the following is a correct statement of the Coase theorem?
a. The private sector will provide less than the socially optimal quantity of a public good.
b. The benefits to domestic producers of an import quota can be achieved at lower
government cost through an equivalent tariff.
c. Tradable pollution permits allocate pollution to those producers who face the highest
costs of abatement.
*. In markets with externalities, private bargaining can lead to an efficient allocation of
resources if there are no transactions costs.
Questions 19 and 20 refer to Schedule Y-1 from the 2008 Instruction booklet for federal
individual income tax form 1040. Bob and Janice, a married couple, used the "married,
filing jointly" tax status to file their 2008 federal income tax returns. They reported
taxable income of $63,320 on total income of $78,450.
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
$16,050
--------- 10%
$0
16,050
65,100
$1,605 + 15%
16,050
65,100
131,450
8,962.50 + 25%
65,100
131,450
200,300
25,550 + 28%
131,450
200,300
357,700
44,828 + 33%
200,300
357,700
---------96,770 + 35%
357,700
19. According to Schedule Y-1, Bob and Janice's federal income tax for 2008 is
*. $8,695.50.
b. $9,498.00.
c. $12,300.00.
d. $15,830.00.
20. Bob and Janice itemized deductions but, before filing their tax returns, they realize
that they can claim an additional $100 of deductions more than they had thought. When
they amend their tax return to reflect this change, their tax liability will
a. increase by $15.
*. decrease by $15.
c. increase by $25.
d. decrease by $25.
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21. A good that is rival in consumption and non-excludable is called
a. a private good.
b. a public good.
*. a common resource.
d. a group good.
22. In the case of pollution abatement, most economists prefer market-based approaches
to command-and-control approaches because a market-based approach
*. achieves a given amount of pollution abatement at least cost.
b. results in a greater reduction in pollution than a command-and-control approach.
c. raises revenue for the government.
d. all of the above.
23. In 2008, the firm Gilda's Gadgets had revenue of $500,000, explicit costs of
$340,000, and implicit costs of $220,000. Gilda's Gadgets accounting profit was
a. $120,000 and its economic profit was $160,000.
b. $280,000 and its economic profit was $120,000.
c. $60,000 and its economic profit was -$120,000.
*. $160,000 and its economic profit was -$60,000.
24. Marginal cost is
*. the change in total cost when output is increased by one unit.
b. the change in output when labor employment is increased by one worker.
c. the change in profit when one more unit is produced and sold.
d. total cost divided by the number of units of output produced.
25. When the firm Wally's Widgets manufactures 4 widgets per day, its average total cost
is $75/widget. The marginal cost of the fifth widget per day is $90/widget/day. Average
total cost for Wally's Widgets when it manufactures 5 widgets per day is
a. $75/widget.
*. $78/widget.
c. $80/widget.
d. $82.50/widget.
26. A competitive firm faces a price of $5.00/unit for its product. It is currently operating
where marginal cost is $6.00/unit and average variable cost is $4.00/unit. To maximize
profit (or minimize loss) in the short-run, the firms should
a. increase output.
*. decrease output, but not shut down.
c. shut down.
d. Not enough information is given for an answer.
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27. At its current output level, a monopolist's marginal cost and marginal revenue are
both $2/unit, average variable cost is $3/unit, average total cost is $4/unit, and price is
$5/unit. To maximize profit (or minimize loss) in the short-run, the monopolist should
a. increase output.
*. maintain its current output.
c. decrease output, but not shut down.
d. shut down.
28. A market structure in which there are only a few sellers offering similar or identical
products is called
a. a monopoly.
b. a Nash industry.
*. an oligopoly.
d. a cartel.
Questions 29 and 30 refer to the following payoff matrix describing a game between two
players, A and B. Player A chooses between strategies "Up," and "Down." Player B
chooses among strategies "Left," "Center," and "Right." The entries in the cells of the
table give the payoffs to each player for each combination of strategies. (A higher payoff
is better than a lower payoff. In each cell, Player A's payoff is listed first and Player B's
payoff is listed second.)
Player A's
strategies
Up
Down
Left
(-8, -4)
(-6, 8)
Player B's strategies
Center
(3, -2)
(4, -5)
29. Which of the following is true?
a. Only Player A has a dominant strategy.
b. Only Player B has a dominant strategy.
c. Both players have dominant strategies.
*. Neither player has a dominant strategy.
30. Which of the following strategy pairs is a Nash equilibrium?
a. Up-Center.
b. Up-Right.
c. Down-Left.
*. More than one of the above is a Nash equilibrium.
Right
(1, 6)
(0, 5)