Economics 609 Midterm 1

Economic growth depends more on technological change than on increases on capital per hour worked.

To maximize profit, a monopolist will produce and sell a quantity such that for the last unit sold, marginal revenue equals marginal cost, and charges a price given by the demand curve at that output level.

Merger guidelines developed by the Antitrust Division of the U.S. Department of Justice use four-firm concentration ratios as measures of concentration.

The developing countries have been catching up to the lower-income industrial countries in terms of economic growth.

Maximizing average profit is equivalent to maximizing total profit.

A U-shaped long run average cost curve implies that a firm experiences economies of scale at low levels of production and diseconomies of scale at high levels of production.

The Sarbanes-Oxley Act of 2002 requires that each member of the board of directors personally certify the accuracy of financial reports.

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm’s demand curve.

A Lorenz curve summarizes the information provided by a Gini coefficient.

A tax rebate, like the one issued in 2008, is likely to ________ consumption spending ________ than would a permanent tax cut.
A) increase; more
B) increase; less
C) decrease; more
D) decrease; less

Of the following U.S. presidents, which was the first to propose a national health insurance program to Congress?
A) Barack Obama
B) Bill Clinton
C) John F. Kennedy
D) Harry Truman

Table 4-5

Consumer	Willingness to Pay
Violet	$48
Walter	40
Xavier	30
Yolanda	24
Zachary	14

The table above lists the highest prices five consumers are willing to pay for a concert ticket. If the price of one ticket is $50,
A) everyone will buy a ticket.
B) consumer surplus will be maximized.
C) Violet’s consumer surplus is $2.
D) no one will buy a ticket.

The cities of Francistown and Nalady are five miles apart. Francistown enacts a rent control
law that puts a ceiling on rents well below their equilibrium market value. Predict the impact of this law on the competitive equilibrium rent in Nalady, which does not have a rent control law.
a. Illustrate your answer with one demand and supply graph for the apartment market in Francistown and another demand and supply graph for the apartment marketing Nalady.
b. Make sure that your graphs clearly show (1) the initial equilibrium before the rent control in both markets and (2) what happens after the imposition of rent control.
c. Clearly show any shifts in the demand or supply curves, and the movement along the curves for each market.
d. Label your graphs fully and provide written explanation for your graphs.

At macroeconomic equilibrium, total ________ equals total ________.
A) spending; production
B) investment; inventories
C) consumption; production
D) taxes; transfers

Figure 4-7
The figure above represents the market for iced tea. Assume that this is a competitive market. If the price of iced tea is $1,
A) the quantity supplied is less than the economically efficient quantity.
B) the quantity supplied is economically efficient but the quantity demanded is economically inefficient.
C) economic surplus is maximized.
D) not enough consumers want to buy iced tea.

Which of the following is not held constant along a firm’s demand curve for labor?
A) the quantity of other inputs used by the firm
B) the wage rate
C) changes in technology
D) the price of the product produced by the firm

Suppose that when the price of strawberries decreases, Simone increases her purchase of whipped cream. To Simone,
A) strawberries and whipped cream are complements.
B) strawberries and whipped cream and substitutes.
C) strawberries and whipped cream are normal goods.
D) strawberries are a normal good and whipped cream is an inferior good.

Which of the following statements about a simple circular flow model is false?
A) Producers are buyers in the factor market and sellers in the product market.
B) Households are neither buyers nor sellers in the input market.
C) Producers are buyers in the factor market.
D) Households are sellers in the product market.

In Walnut Creek, California, there are three very popular supermarkets: Safeway, Whole Foods and Lunardi’s. While Safeway remains open twenty-four hours a day, Whole Foods and Lunardi’s close at 9 pm. Which of the following statements is true?
A) Safeway is a monopoly all day because it produces a service that has no close substitutes.
B) Safeway has a monopoly at midnight but not during the day.
C) Safeway can ignore the pricing decisions of the other two supermarkets.
D) Safeway probably has a higher markup to compensate for its higher cost of production.

Economic efficiency in a competitive market is achieved when
A) economic surplus is equal to consumer surplus.
B) consumers and producers are satisfied.
C) the marginal benefit equals the marginal cost from the last unit sold.
D) producer surplus equals the total amount firms receive from consumers minus the cost of production.

Clarissa Kessler operates a store that sells recorded music. Her business suffered tremendously when a giant discount store chain opened a store in the area and is able to sell its products for less than Clarissa’s wholesale cost. Is this evidence of illegal price discrimination on the part of the discount store chain?
A) Yes, it is clearly a violation of the Robinson-Patman Act.
B) No, because it can be argued that the discount store chain is justified in charging lower prices because it is a large-volume buyer and is able to purchase recorded music at a lower wholesale price than Clarissa.
C) Yes, the discount store chain is engaging in predatory pricing.
D) No, even if the price discrimination is based on differences in cost, the law states that it is not illegal.

What is meant by the term opportunity cost?

Suppose the price elasticity of demand for cigarettes is -0.4. The FDA decides to regulate tobacco production, which increases the price of cigarettes and causes the quantity of cigarettes demanded to decrease by 25 percent. What is the percentage increase in price which would lead to the 25 percent decrease in quantity demanded? If the price elasticity was -4, what would be the percentage increase in price?

Fill in the missing values in the table of data collected in the household survey for December, 1996. The working-age population, employment, unemployment, and labor force are measured in thousands. Show your work.

Working-age population
Employment
Unemployment
Unemployment rate	5.4%
Labor force	135,113
Labor force participation rate	67.0%

Should countries specialize in producing goods and services based on having a comparative advantage or an absolute advantage? Why?

Table 9-13

Product	Quantity	Base Year Price (2001)	Price (2012)	Price (2013)
Tacos	5	$1.50	$2.00	$2.25
Earplugs	10	6.00	7.50	7.00
Toothbrushes	3	2.50	3.50	3.50

Consider a simple economy that produces only three products: tacos, earplugs, and toothbrushes. Use the information in the table to calculate the inflation rate for 2013, as measured by the consumer price index.

Table 18-4

Foreign Aid	Post-Secondary Education	Roads and Bridges
Tom	3rd	1st	2nd
Dick	2nd	3rd	1st
Harriet	1st	2nd	3rd

The table above outlines the rankings of three members of the U.S. House of Representatives on three spending alternatives. Assume that Congress can spend additional revenue on only one of the three spending alternatives and that Tom, Dick and Harriet, all members of the House of Representatives, participate in a series of votes in which they are to determine which of the spending alternatives should receive funding. Three votes will be taken: (1) Foreign Aid and Post-Secondary Education (2) Foreign Aid and Roads and Bridges and (3) Post-Secondary Education and Roads and Bridges. Determine whether the voting paradox will occur as a result of these votes.