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________________________ Name: Class: ___________________ Date: __________ ID: A Practice Final Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Since restored historic buildings convey a positive externality, local governments may choose to a. regulate the demolition of them. b. provide tax breaks to owners who restore them. c. increase property taxes in historic areas. d. Both a and b are correct. Figure 10-4 ____ 2. Refer to Figure 10-4. This market a. has no need for government intervention. b. would benefit from a tax on the product. c. would benefit from a subsidy for the product. d. would maximize total well-being at Q3. 3. Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question. ____ 1 Name: ________________________ ____ 4. The Coase theorem states that a. under certain circumstances government intervention is not needed to reach efficient outcomes when an externality is present. b. government intervention is always required to reach an efficient outcome when an externality is present. c. government intervention cannot lead to an efficient outcome when an externality is present. d. only negative externalities can be resolved using government intervention. ID: A ____ 5. Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution? a. Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15). b. Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off. c. Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter declines because he has a right to smoke in the smoking section. d. Bill offers Peter $5 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off. Table 11-1 Consider the town of Tritown with only three residents, Ed, Jim, and Tony. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each residents willingness to pay for each acre of the park. Acres 1 2 3 4 5 6 7 Ed $12 8 4 2 0 0 0 Jim $16 12 8 4 1 0 0 Tony $28 24 20 16 12 8 4 ____ 6. Refer to Table 11-1. Suppose the cost to build the park is $30 per acre and that the residents have agreed to split the cost of building the park equally. If the residents vote to determine the size of park to build, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the largest park size for which the majority of residents would vote yes? a. 0 acres b. 1 acre c. 2 acres d. 3 acres 2 Name: ________________________ ____ ID: A 7. Which of the following is not a way for the government to solve the problem of excessive use of common resources? a. regulation b. taxes c. turning the common resource into a public good d. turning the common resource into a private good 8. Which city currently charges drivers a congestion toll to drive into the heart of the citys financial, legal, and entertainment district? a. Washington, D.C. b. Sydney c. Tokyo d. London 9. Sue earns income of $80,000 per year. Her average tax rate is 40 percent. Sue paid $4,500 in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income? a. 15 percent b. 32 percent c. 40 percent d. 55 percent Table 12-9 The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income. On Taxable Income... $0 to $10,000 $10,000 to $30,000 $30,000 to $60,000 $60,000 to $110,000 $110,000 to $180,000 Over $180,000 The Tax Rate is... 10% 25% 35% 40% 43% 45% ____ ____ ____ 10. Refer to Table 12-9. For this tax schedule, what is the average tax rate for an individual with $280,000 in taxable income? a. 39.9% b. 40.2% c. 42.7% d. 44.8% 3 Name: ________________________ Table 12-14 ID: A The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. Amount of Tax Due Tax Schedule B Tax Schedule C $20,000 $17,500 $30,000 $25,000 $40,000 $30,000 Income $50,000 $100,000 $200,000 Tax Schedule A $10,000 $30,000 $80,000 Tax Schedule D $15,000 $30,000 $60,000 ____ 11. Refer to Table 12-14. Which tax schedules are progressive? a. Tax Schedule A only b. Tax Schedule A and Tax Schedule B c. Tax Schedule A, Tax Schedule B, and Tax Schedule C d. All four Tax Schedules are progressive. ____ 12. You are trying to design a tax system that will simultaneously achieve both of the following goals: 1) a person with no income would pay no taxes, and 2) a high-income person would pay a higher fraction of income in taxes than a low-income person. Which of the following statements is correct? a. A lump-sum tax would achieve the second goal but not the first. b. A regressive tax would achieve the second goal but not the first. c. A progressive tax could achieve both goals. d. A proportional tax could achieve the second goal but not the first. Table 13-4 Gallo Cork Factory Number of Workers Number of Machines Output (corks produced per hour) Marginal Product of Labor Cost of Workers Cost of Machines Total Cost 1 2 3 4 5 6 7 2 2 2 2 2 2 2 5 10 20 35 55 70 80 ____ 13. Refer to Table 13-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of corks produced. If Gallo's produces at a rate of 70 corks per hour and operates 8 hours per day, what is Gallos total labor cost per day? a. $72 b. $112 c. $576 d. $616 4 Name: ________________________ ID: A ____ 14. Refer to Table 13-4. Assume Gallo's currently employs 2 workers. What is the marginal product of labor when Gallo's adds a 3rd worker? a. 5 corks per hour b. 10 corks per hour c. 20 corks per hour d. 25 corks per hour Table 13-5 The Flying Elvis Copter Rides Quantity Total Fixed Cost Cost 0 1 2 3 $50 $150 G M $50 A H N Variable Cost $0 B I O Marginal Cost -C $120 P Average Fixed Cost -D J Q Average Variable Cost -E K $120 Average Total Cost -F L R ____ 15. Refer to Table 13-5. What is the value of L? a. $60 b. $135 c. $240 d. $270 5 Name: ________________________ ID: A Table 13-9 Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month. Output (Instructional Modules per Month) Average Fixed Cost Average Variable Cost Average Total Cost Fixed Costs Variable Costs Total Cost Marginal Cost 0 1 2 3 4 5 6 7 8 9 10 $1,080 $1,080 $ 400 $1,350 $1,900 $2,500 $4,100 $5,400 $7,300 $1,480 $965 $2,430 $475 $216 $4,280 $135 $10,880 $980 $400 $450 $700 ____ 16. Refer to Table 13-9. How many instructional modules are produced when marginal cost is $1,300? a. 4 b. 5 c. 7 d. 8 ____ 17. For a firm in a perfectly competitive market, the price of the good is always a. equal to marginal revenue. b. equal to total revenue. c. greater than average revenue. d. equal to the firms efficient scale of output. 6 Name: ________________________ Figure 14-4 ID: A ____ 18. Refer to Figure 14-4. Firms would be encouraged to enter this market for all prices that exceed a. P1. b. P2. c. P3. d. P4. ____ 19. A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will a. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. b. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. c. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. d. not fall in the short run because firms will exit to maintain the price. ____ 20. Which of the following statements is correct for a monopolist? i) The firm maximizes profits by equating marginal revenue with marginal cost. ii) The firm maximizes profits by equating price with marginal cost. iii) Demand equals marginal revenue. iv) Average revenue equals price. a. b. c. d. i), iii), and iv) only i) and iv) only i), ii), and iv) only i), ii), iii), and iv) 7 Name: ________________________ ID: A ____ 21. When a monopolist increases the number of units it sells, there are two effects on revenue. They are the a. demand effect and the supply effect. b. competition effect and the cost effect. c. competitive effect and the monopoly effect. d. output effect and the price effect. Figure 15-4 ____ 22. Refer to Figure 15-4. The marginal revenue curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D. ____ 23. Refer to Figure 15-4. If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to a. remain unchanged. b. decrease. c. increase as long as the new level of output is at least Q2. d. increase as long as the new level of output is at least Q1. 8 Name: ________________________ Table 15-2 Dreher's Designer Shirt Company, a monopolist, has the following cost and revenue information. COSTS Quantity Produced Total Cost ($) Marginal Cost Quantity Demanded ID: A REVENUES Price ($/unit) Total Revenue Marginal Revenue 0 1 2 3 4 5 6 7 8 100 140 184 230 280 335 395 475 565 -- 0 1 2 3 4 5 6 7 8 170 160 150 140 130 120 110 100 90 -- ____ 24. Refer to Table 15-2. What is the marginal revenue from selling the 2nd shirt? a. $140 b. $150 c. $160 d. $170 Figure 15-7 ____ 25. Refer to Figure 15-7. What is the socially efficient price and quantity? a. price = F; quantity = A b. price = G; quantity = B c. price = G; quantity = A d. price = D; quantity = A 9 Name: ________________________ Table 15-5 Quantity 0 1 2 3 4 5 6 7 8 9 10 ID: A Price $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0 ____ 26. Refer to Table 15-5. If the monopolist faces a constant marginal cost of $2, how much output should the firm produce? a. 3 units b. 4 units c. 5 units d. 6 units ____ 27. Price discrimination is the business practice of a. bundling related products to increase total sales. b. selling the same good at different prices to different customers. c. pricing above marginal d. cost. hiring marketing experts to increase consumers brand loyalty. ____ 28. Financial aid to college students, quantity discounts, and senior citizen discounts are all examples of a. consumer surplus. b. deadweight loss. c. price discrimination. d. nonprofit pricing strategies. ____ 29. Monopolistic competition is characterized by which of the following attributes? (i) free entry (ii) product differentiation (iii) many sellers a. b. c. d. (i) and (iii) only (i) and (ii) only (ii) and (iii) only (i), (ii), and (iii) 10 Name: ________________________ ID: A ____ 30. When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost, a. the firm must be earning a positive economic profit. b. the firm may be incurring economic losses c. there is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity. d. new firms will enter the market in the long run. Figure 16-5 ____ 31. Refer to Figure 16-5. Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is earning a positive profit? a. panel a b. panel b c. panel c d. panel d 11 Name: ________________________ ID: A Table 16-5 Tracis Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for hair cuts at Tracis Hairstyling. COSTS REVENUES Quantity Produced Total Cost Marginal Cost Quantity Demanded Price Total Revenue Marginal Revenue 0 1 2 3 4 5 6 7 8 $10 $15 $21 $28 $36 $45 $55 $66 $78 -- 0 1 2 3 4 5 6 7 8 $50 $45 $40 $35 $30 $25 $20 $15 $10 -- ____ 32. Refer to Table 16-5. When maximizing profit, what price does Tracis charge for a haircut? a. $20 b. $25 c. $30 d. $35 ____ 33. Refer to Table 16-5. Given the cost and revenue data, Tracis is a. not in a long-run equilibrium. More businesses will enter the hair salon market in the long-run. b. not in a short-run equilibrium. c. not in a long-run equilibrium. Some businesses currently in the hair salon market will exit the market in the long-run. d. in a long-run equilibrium. ____ 34. Which of the following statements is correct? a. In the long run, both perfectly competitive firms and monopolistically competitive firms operate with excess capacity. b. A firm operates with excess capacity when, in the long run, its level of output is below the efficient scale. c. For any firm, efficient scale is the level of output at which the average-total-cost curve is tangent to the demand curve. d. All of the above are correct. ____ 35. Television advertisements aired during major sporting events are very expensive. A theory asserting that people buy a product simply because it is advertised would suggest that information on the high cost of advertising a. enhances the effectiveness of the advertisement. b. reduces people's willingness to purchase advertised products. c. is leaked to discredit the firms that spend so much on advertising. d. reduces the effective staying power of a product. 12 Name: ________________________ ____ 36. Which of the following statements is correct? a. Firms in monopolistic competition and monopoly can earn economic profits in both the short run and the long run. b. Both perfectly competitive and monopolistically competitive firms are price takers. c. Both a monopolistically competitive industry and a monopoly are characterized by a very small number (or one) firm. d. Firms can easily enter a perfectly competitive or monopolistically competitive industry. Table 17-7. The table shows the demand schedule for a particular product. Quantity 0 5 10 15 20 25 30 35 40 45 50 Price 10 9 8 7 6 5 4 3 2 1 0 ID: A ____ 37. Refer to Table 17-7. Suppose that the marginal cost to produce this product is constant at $1 per unit and that the fixed cost of producing this product is $10. If the market is served by two duopolists who each, acting in their own self-interest, choose the Nash equilibrium level of production, how much profit will each firm earn? a. $10 b. $20 c. $35 d. $50 13 Name: ________________________ Table 17-9 ID: A Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). State prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states. Concede that cigarette smoke causes lung cancer Concede that cigarette smoke causes lung cancer Argue that there is no evidence that smoke causes cancer Firm A profit = $20 Firm B profit = $15 Firm A profit = $5 Firm B profit = $50 Firm B Argue that there is no evidence that smoke causes cancer Firm A profit = $50 Firm B profit = $5 Firm A profit = $10 Firm B profit = $10 Firm A ____ 38. Refer to Table 17-9. When this game reaches a Nash equilibrium, profits for Firm A and Firm B will be a. $-5 and $-50, respectively. b. $-10 and $-10, respectively. c. $-20 and $-15, respectively. d. $-50 and $-5, respectively. Table 17-10 Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation). Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland. Farland Impose trade sanctions Do not impose trade sanctions against U.S. firms against U.S. firms U.S. trade value = $65 b U.S. trade value = $140 b Farland trade value = $75 b Farland trade value = $5 b U.S. trade value = $35 b U.S. trade value = $130 b Farland trade value = $285 b Farland trade value = $275 b United States Don't renew MFN status with Farland Renew MFN status with Farland ____ 39. Refer to Table 17-10. This particular game a. features a dominant strategy for the U.S. b. features a dominant strategy for Farland. c. is a version of the prisoners' dilemma game. d. All of the above are correct. 14 Name: ________________________ ____ 40. Predatory pricing occurs when a firm a. exercises its oligopoly power by raising its price through the formation of a cartel. b. exercises its monopoly power by raising its price. c. cuts its prices in order make itself more competitive. d. cuts its prices temporarily in order to drive out any competition. ID: A ____ 41. Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"? a. Melissa can attend the concert only if she takes her sister with her. b. Greg is hungry and homeless. c. Brian must repair the tire on his bike before he can ride it to class. d. Kendra must decide between going to Colorado or Cancun for spring break. ____ 42. Sophia is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that a. people respond to incentives. b. rational people think at the margin. c. people face tradeoffs. d. improvements in efficiency sometimes come at the expense of equality. ____ 43. Efficiency means that a. society is conserving resources in order to save them for the future. b. society's goods and services are distributed equally among society's members. c. society's goods and services are distributed fairly, though not necessarily equally, among society's members. d. society is getting the maximum benefits from its scarce resources. ____ 44. Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if a. Canada requires fewer resources than the U.S. to produce a bushel of wheat. b. the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S. c. the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for Canada. d. the U.S. has an absolute advantage over Canada in producing computer software. ____ 45. Which of the following is not a characteristic of a perfectly competitive market? a. Sellers set the price of the product. b. There are many sellers. c. Buyers must accept the price the market determines. d. All of the above are characteristics of a perfectly competitive market. 15 Name: ________________________ Figure 4-14 Panel (a) Panel (b) ID: A Panel (c) Panel (d) ____ 46. Refer to Figure 4-14. Panel (c) shows which of the following? a. an increase in demand and an increase in quantity supplied b. an increase in demand and an increase in supply c. an increase in quantity demanded and an increase in quantity supplied d. an increase in quantity demanded and an increase in supply ____ 47. In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive. c. how firms profits respond to changes in market prices. d. how much buyers and sellers respond to changes in market conditions. 16 Name: ________________________ Figure 7-8 ID: A ____ 48. Refer to Figure 7-8. If the supply curve is S and the demand curve shifts from D to D, what is the increase in producer surplus due to new producers entering the market? a. $625 b. $2,500 c. $3,125 d. $5,625 ____ 49. Suppose Puerto Rico has a comparative advantage over other countries in producing sugar, but other countries have an absolute advantage over Puerto Rico in producing sugar. If trade in sugar is allowed, Puerto Rico a. will import sugar. b. will export sugar. c. will either export sugar or export sugar, but it is not clear from the given information. d. would have nothing to gain either from exporting or importing sugar. ____ 50. After a country goes from disallowing trade in coffee with other countries to allowing trade in coffee with other countries, a. the domestic price of coffee will be greater than the world price of coffee. b. the domestic price of coffee will be lower than the world price of coffee. c. the domestic price of coffee will equal the world price of coffee. d. The world price of coffee does not matter; the domestic price of coffee prevails. 17 ID: A Practice Final Answer Section MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. D B C A A C C D D A A C C B B D A D C B D B C A B B B C D B C C A B A D C B D D 1 ID: A 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. D C D B A D D A B C 2 ... View Full Document

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