Economics 99801

Figure 5-3

Refer to Figure 5-3. The efficient output level is
A) Q_m.
B) Q_n.
C) Q_o.
D) Q_o– Q_m.

Suppose your expenses for this term are as follows: tuition: $10,000, room and board: $6,000, books and other educational supplies: $1,000. Further, during the term, you can only work part-time and earn $8,000 instead of your full-time salary of $20,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college?
A) $11,000
B) $17,000
C) $23,000
D) $29,000

Table 11-3

Quantity of Workers	Quantity of Boxes	Marginal Product of Labor	Average Product of Labor
0	0	—–	—–
1	50
2	200
3	240
4	264
5	284

Refer to Table 11-3. The table above refers to the relationship between the quantity of workers employed and the number of cardboard boxes produced per day by Manny’s House of Boxes. The capital used to produce the boxes is fixed. The highest value of the average product is labor is ________ when Manny hires ________ workers.
A) 80; 3
B) 100; 3
C) 100; 2
D) 80; 4

Price discrimination is the practice of
A) charging different prices for the same good when the price differences are not due to differences in cost.
B) charging different prices for the same good when the price differences arise because of differences in cost.
C) charging different prices for different qualities of a product.
D) charging higher prices for brand named goods and lower prices for generic versions of the goods.

Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this?
A) There is an increase in the supply of pool maintenance services.
B) There is a decrease in the demand for pool maintenance services.
C) There is a decrease in the quantity of pool maintenance services supplied.
D) There is a decrease in the supply of pool maintenance services.

Adam Smith’s invisible hand refers to
A) the government’s unobtrusive role in ensuring that the economy functions efficiently.
B) property ownership laws and the rule of the court system.
C) the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole.
D) the laws of nature that influence economics decisions.

An item has utility for a consumer if it
A) is scarce.
B) has a high price.
C) is something everyone else wants.
D) generates enjoyment or satisfaction.

If the quantity of fishing poles demanded is represented by the equation Q_D = 60 – P then the corresponding price of fishing poles is represented by the equation
A) P = 0.6Q_D + 10.
B) P = 60 – Q_D.
C) P = -60 + Q_D.
D) P = Q_D + 60.

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is
A) unit-elastic.
B) perfectly elastic.
C) relatively inelastic.
D) relatively elastic.

A characteristic found only in oligopolies is
A) break even level of profits.
B) interdependence of firms.
C) independence of firms.
D) products that are slightly different.

The wage rate is the opportunity cost of
A) working.
B) working overtime.
C) leisure.
D) consumption.

Erin and Deidre, two residents in Ithaca, New York, are planning a trip to Boston. Erin, the sales manager for a large retailer, has to attend a business meeting. Deidre, a college student on vacation, is planning a leisurely trip to visit friends and relatives. Whose demand curve for air travel is likely to be more elastic?
A) Erin
B) Deidre
C) There is no difference in their price elasticities of demand.
D) The elasticity of the demand curves for Erin and Deidre cannot be determined without more information.

Assume that both the demand curve and the supply curve for MP3 players shift to the right but the supply curve shifts more than the demand curve. As a result
A) both the equilibrium price and quantity of MP3 players will decrease.
B) the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase.
C) the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease.
D) the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.

Suppliers will be willing to supply a product only if
A) the price received is less than the additional cost of producing the product.
B) the price received is at least equal to the additional cost of producing the product.
C) the price is higher than the average cost of producing the product.
D) the price received is at least double the additional cost of producing the product.

When you buy previously-issued shares of Facebook stock, this transaction takes place in the
A) primary market.
B) bond market.
C) secondary market.
D) bear market.

What is the United States government’s formal definition of the poverty line?
A) It is a level of annual income equal to total income in society divided by the population, adjusted for a family of four.
B) It is a level of annual income equal to the amount of money necessary to purchase the minimal quantity of food required for adequate nutrition.
C) It is the annual income level below which a household is exempt from taxes.
D) It is a level of annual income equal to three times the amount of money necessary to purchase the minimal quantity of food required for adequate nutrition.

________ is defined as the dispersal of production activities to locations that help a company achieve its cost-minimization or quality-maximization objectives for a good or service.
A) Global offering
B) Globalization of production
C) Global governance
D) Globalization of markets

If a corporate bond with a face value of $2,000 pays yearly coupon payments of $50, what is the coupon rate?
A) 2.5%
B) 4%
C) 25%
D) 40%

Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He asks his friend, Carmen, if she’d like to join him in setting up a partnership to start the business. What is one disadvantage in joining the partnership that Carmen should consider?
A) Carmen should realize that profits in the partnership will be reduced by dividend payments to shareholders.
B) Carmen should realize that, as an owner of the business, she will be personally responsible for the debts of the business.
C) Carmen should realize that the profits of the business will also be taxed as dividend income, so she faces the potential for double taxation of that business income.
D) Carmen should realize that the Jeremy will have complete control over the business because it was his idea.

Why do corporations want to keep the price of their stock high?
A) A higher stock price increases the funds the firm can raise when it sells a given amount of stock.
B) Corporations can pay their managers lower salaries and avoid principal-agent problems when stock prices are higher.
C) Higher stock prices are correlated with lower expected profitability.
D) All of the above provide incentive for corporations to keep the price of their stock high.

In 2010, Hooverville consumed 205,000 tons of sugar. In 2011, sugar consumption rose to 245,000 tons. Calculate the percentage change in sugar consumption.
A) 8.37%
B) 11.95%
C) 19.51%
D) 26.33%

Some superstar athletes in the sports industry earn very high levels of income relative to other occupations, and over time the wage differential has been increasing. What could have caused this?
A) The supply of star athletes has decreased.
B) The supply of star athletes has increased due to college athletic programs.
C) Technological advances such as cable television has increased the demand for sports entertainment.
D) The market power of athletes’ unions has increased.

In the United States, over the past 40 years federal revenues as a share of gross domestic product have
A) risen steadily and now are about 40 percent.
B) ranged between 17 and 19 percent.
C) fallen below 10 because of rapid economic growth.
D) been limited by law to no more than 20 percent.

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?
A) Restaurants do not sell identical products.
B) Restaurants compete in small market areas – neighborhoods and cities – rather than in regional or national markets. Therefore, restaurants are not small relative to their market size.
C) Restaurants usually have entry barriers in the form of zoning restrictions and health regulations.
D) Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning.

Why is price discrimination legal but not discrimination based on race or gender?
A) because price discrimination increases profits and therefore tax revenues for the government, but discrimination based on race or gender reduces tax revenues
B) because price discrimination reduces deadweight loss, but discrimination based on race or gender increases deadweight loss
C) because price discrimination involves charging people different prices based on their willingness to pay rather than on the basis of arbitrary characteristics
D) because price discrimination enables firms to increase output and employment, but race or gender based discrimination reduces employment

Producing a differentiated product occurs in which of the following industries?
A) oligopoly, monopolistic competition and perfect competition
B) monopolistic competition only
C) oligopoly only
D) monopolistic competition and oligopoly

Table 9-6
Production and
Consumption Production
Without Trade With Trade

	Clocks	Hats	Clocks	Hats
Denmark	900	150	1,200	0
Belize	150	100	0	400

Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production and consumption quantities without trade, and the production numbers with trade.
Refer to Table 9-6. Which country has an absolute advantage in producing hats?
A) Denmark
B) Belize
C) both countries
D) neither country

To maximize their profits and defend those profits from competitors, monopolistically competitive firms must
A) lobby government to erect barriers to entry in their industries.
B) limit foreign competition in their markets by encouraging the government to impose tariffs and other trade restrictions.
C) differentiate their products.
D) achieve economies of scale.

Some consumer electronic products such as plasma TVs, DVD players and digital cameras, are introduced at very high prices but over time, their prices start falling (beyond what could be attributed to falling costs as companies take advantage of economies of scale and cheaper technologies). Which of the following is the best explanation for this observation?
A) More firms are likely to enter the consumer electronic market over time, forcing market prices down.
B) Early adopters of these new products typically have a higher demand and higher income compared to those who are willing to wait.
C) Early adopters are more quality conscious and are willing to pay higher prices for the initial production of these goods.
D) After satisfying the demand for early adopters, firms lower price to attract the more price sensitive consumers.

Who controls a partnership?
A) stockholders
B) bondholders
C) the owners
D) all of these

In 2004, hurricanes destroyed a large portion of Florida’s orange and grapefruit crops. In the market for citrus fruit
A) the supply curve shifted to the right resulting in an increase in the equilibrium price.
B) the supply curve shifted to the left resulting in an increase in the equilibrium price.
C) the demand curve shifted to the right resulting in an increase in the equilibrium price.
D) the demand curve shifted to the left resulting in a decrease in the equilibrium price.

Figure 5-6

Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities.
Refer to Figure 5-6. What is the market equilibrium output level?
A) Q₁
B) Q₂
C) Q₁ + Q₂
D) Q₂ – Q₁

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.

Figure 18-2

Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
Refer to Figure 18-2. If the government imposes an excise tax of $1.00 on every unit sold, what is the size of the deadweight loss, if there is any?
A) the area adcif the supply curve is S₀ and the area bec if the supply curve is S₁.
B) the area afcdif the supply curve is S₀ and the area bfce if the supply curve is S₁.
C) the area becf under either supply curve.
D) There is no deadweight loss; revenue raised is used to fund government projects.

A change in the price of a good has two effects on the quantity consumed. What are these effects?
A) the income effect and the substitution effect
B) the utility effect and the budget effect
C) the total utility effect and marginal utility effect
D) the consumption effect and expenditure effect

To maximize profit, a firm will produce the level of output where MR = MC. If a firm actually makes a profit depends on the relationship of price to average total cost. What are the three possible relationships between price and average total cost that determine if a firm will make a profit, experience a loss, or break even?

Discuss the correct and incorrect economic analysis in the following statement.
“The United Auto Workers Union has successfully negotiated a 9 percent increase in wages for its workers. This increase in the wage rate causes an increase in demand for automobiles, since many consumers now have greater incomes, and also a decrease in the supply of automobiles because the cost of production has increased. These effects cancel each other out resulting in no change in equilibrium price and quantity in the automobile market.”

How do unlimited and limited liability differ?

How do the price and quantity of a monopoly compare to that of a perfectly competitive industry?

What is the difference between ‘shutting down temporarily” and “exiting the industry”?

If the price of a product is above equilibrium, what forces it down?

What are the most important differences between perfectly competitive markets and monopolistically competitive markets?

Discuss the role of product differentiation and advertising in monopolistic competition.

Briefly describe the most important differences between the market for health care and the market for other goods and services.

What is a compensating differential?

What is a private benefit from consumption? What is a social benefit from consumption? When is the private benefit from consumption equal to the social benefit from consumption?

What is an entrepreneur?

In 1984, the National Minimum Drinking Age Act was passed, raising the legal age to consume alcoholic beverages in the United States to 21. In much of Europe, the legal age to consume alcohol is 18. If the legal drinking age in the United States was changed back to 18, how would this affect the market for alcoholic beverages? What would happen to the equilibrium price and quantity of alcoholic beverages?

Why is it necessary for a firm that practices price discrimination be a price maker rather than a price taker?

What area on a supply and demand graph represents consumer surplus?

For a given demand curve, will there be a greater loss of economic efficiency from a binding price floor when supply is elastic or inelastic? Illustrate your answer with a demand and supply graph. In your graph you must show two supply curves, one elastic and the other inelastic.

What is a tariff?

What shape does a production possibilities frontier take if it displays increasing opportunity costs? What shape does a production possibilities frontier take if it displays constant opportunity costs? Which shape is most common in production situations?

What has happened to health care’s share of gross domestic product in the United States since 1965? How does this compare to what has happened to out-of-pocket spending on health care as a percentage of all spending on health care?