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Unformatted text preview: Final Exam for 304K: Introduction to Microeconomics U Dr. Olivier Giovannoni // unique number 34220 Friday, December 14, 2007 Duration: 3 hours. Read this: 1. Bubble up your name and EID immediately on the scantron sheet 2. No document is allowed of any sort, and no calculators are allowed. Nothing besides a pencil and clear thinking. 3. In compliance with the UT regulations, any student caught cheating is in trouble. 4. The scantrons will be graded immediately after the exam and I will proceed to compute the averages and take care of the exceptions. I will then enter the final grades and submit them to the administration. 5. No email or question about the grades will be answered before the first week of class of the spring semester. Any email on that topic will not be answered and will b immediately deleted. Any change in grade after the submission of the results requires a paperwork form which will only be processed during the next semester anyways. Grades can be changed then. 6. An answer sheet will be posted on Blackboard when the grades are in and the distributions calculated. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or best answers the question. 1) The principle of increasing opportunity cost leads to A) a production possibilities frontier (PPF) that is bowed inward from the origin. B) an inward shift of the production possibilities frontier (PPF). C) an outward shift of the production possibilities frontier (PPF). D) a production possibilities frontier (PPF) that is bowed outward from the origin. 1) _______ Production Production of X of Y a 0 40 b 4 36 c 8 28 d 12 16 e 16 0 2) Refer to the table above, which gives five points on a nation's PPF. 2) _______ The opportunity cost of increasing the production of Y from 16 to 36 units is a total of A) 4 units of X. B) 12 units of X. C) 8 units of X. D) 10 units of X. Point 3) The most anyone is willing to pay for another purse is $30. Currently the price of a purse is $40, and the cost of producing another purse is $50. The marginal benefit of a purse is A) $30. B) $40. C) $50. D) an amount not given in the answers above. 3) _______ 4) In markets, people's decisions are coordinated by A) learning‐by‐doing. B) changes in property rights. C) specialization according to absolute advantage. D) adjustments in prices. 4) _______ 5) In the above figure, a price of $15 per dozen for roses would result in A) a surplus. B) equilibrium. C) a shortage. D) downward pressure on prices. 6) If shoes rise in price, the demand curve for shoes ________ and the quantity of shoes demanded ________. A) does not shift; decreases B) shifts leftward; decreases C) shifts leftward; does not change D) does not shift; does not change 7) The demand curve for a normal good shifts leftward if income ________ or the expected future price ________. A) increases; falls B) decreases; falls C) increases; rises D) decreases; rises 5) _______ 6) _______ 7) _______ 8) A rise in the price of good A shifts the A) supply curve of good B rightward if the cross elasticity of demand between A and B is negative. B) supply curve ofgood B rightward if the cross elasticity of demand between A and B is positive. C) demand curve for good B rightward if the cross elasticity of demand between A and B is negative. D) demand curve for good B rightward if the cross elasticity of demand between A and B is positive. 9) The price elasticity of demand ________ in value when moving downward along a ________ line demand curve. A) falls, curved B) rises; straight C) rises; curved D) falls; straight 10) Fred's income has just risen from $940 per week to $1,060 per week. As a result, he decides to purchase 9 percent more steak per week. The income elasticity of Fred's demand for steak is A) 0.90. B) 1.00. C) 1.33. D) 0.75. 11) When the demand for a good is inelastic and its price increases, the total revenue from the sale of the good will ________. A) decrease B) decrease initially and then increase C) increase D) not change 8) _______ 9) _______ 10) ______ 11) ______ 12) What area in the above figure is the producer surplus at the efficient quantity? A) D + E + F B) F C) A D) A + B + C 12) ______ 13) If the market for roller blades is at a competitive equilibrium, and there are no external costs nor benefits, then A) resources are being used efficiently. B) marginal benefit is equal to marginal cost. C) the sum of consumer surplus and producer surplus is maximized. D) All of the above answers are correct. 14) Utilitarianism is a principle whose goal is ________. A) equal happiness for all workers B) the greatest happiness for the greatest number C) equal pay for equal work D) the greatest pay for the greatest number 13) ______ 14) ______ 15) In the above figure, if output is 30 units, then the total deadweight loss is A) $5. B) $10. C) $40. D) $20. 15) ______ 16) The above figure shows the demand and supply curves for housing in City B. What would be the effects of a rent ceiling equal to $1000 per month? A) a surplus equal to 250 apartments B) a surplus equal to 3000 apartments C) nothing because the rent ceiling has no effect on the equilibrium price and quantity D) a shortage equal to 3000 apartments 16) ______ 17) In the figure above, the demand curve shifts rightward from D0 to D1 so that D1 is the relevant demand curve. Suppose the government imposes a rent ceiling of $300 per month. In the short run there will be A) a surplus and a decrease in search costs. B) a shortage and a decrease in search costs. C) a shortage and an increase in search costs. D) a surplus and an increase in search costs. 17) ______ +$3 18) The above figure depicts the market for video games. If the government imposed a $3 per game tax on sellers, what would be tax revenue? A) more than $18 B) $18 C) less than $18 D) More information is needed Total Marginal Quantity utility utility 0 0 1 250 2 180 3 580 4 700 5 100 19) The above table gives some of Tammy's total and marginal utilities from comedy videos. Which of the following statements is true? A) Tammy's marginal utility from the first comedy video is less than her marginal utility from the third comedy video. B) Tammy's marginal utility from the third comedy video is equal to 580/3. C) Tammy's total utility from five comedy videos is 800. D) None of the above answers are correct. 18) ______ 19) ______ Quantity of Marginal utility Quantity of Marginal utility soda from soda pizza from pizza 1 150 1 200 2 120 2 180 3 100 3 150 4 90 4 120 5 60 5 100 6 40 6 60 20) Lisa spends all her income on pizzas and soda. The above table shows Lisa's marginal utility for pizza and marginal utility for soda. If the price of a pizza is $10 and the price of a soda is $10 and Lisa has $40 to spend on the two goods, what combination of pizza and soda will maximize her utility? A) 3 sodas and 5 pizzas B) 1 soda and 3 pizzas C) 2 sodas and 4 pizzas D) 2 sodas and 2 pizzas 20) ______ 21) The figure above shows Ilene's budget line. If the price of a can of cat 21) ______ food rises, her budget line rotates so that the vertical intercept is A) farther away from the origin, but the horizontal intercept is closer to the origin. B) unchanged, but the horizontal intercept is closer to the origin. C) closer to the origin, but the horizontal intercept is farther away from the origin. D) unchanged, but the horizontal intercept is farther away from the origin. 22) For goods and services that are perfect substitutes, the consumer's 22) ______ indifference curves are ________ lines. A) L‐shaped B) negatively sloped, bowed‐inward C) negatively sloped, bowed‐outward D) straight, negatively sloped 23) As Judy moves down along her budget line, ________. A) the opportunity cost of the good measured along the x‐axis increases B) her income does not change and neither does the relative price of the goods C) her income decreases D) the opportunity cost of the good measured along the y‐axis increases 24) Which of the following firms has unlimited liability? A) only partnerships B) only corporations C) only proprietorships D) both proprietorships and partnerships 25) Economies of scale exist when the ________ a unit of a good ________. A) price; rises as its output rate increases B) price; falls as its input rate decreases C) average cost of producing; falls as its output rate increases D) average cost of producing; rises as its input rate increases Output (units) Total cost (dollars) Average Marginal cost variable cost (dollars) (dollars) 23) ______ 24) ______ 25) ______ 0 10 3 80 9 20 14 290 17 380 26) The above (incomplete) table provides information about the 26) ______ relationships between output and various cost measures. The total fixed cost (TFC) for the firm is A) zero. B) $10. C) $45. D) None of the above answers is correct. 27) Which of the following statements is true? 27) ______ A) If marginal product exceeds average product, marginal product rises. B) If marginal product equals average product, marginal product is a maximum. C) If marginal product equals average product, average product is a maximum. D) If average product equals marginal product, average product falls. 28) In general, increasing marginal returns occur 28) ______ A) as output expands at low levels of production. B) whenever the slope of the total product curve is positive. C) as output expands at high levels of production. D) through the entire range of production. 29) In the above figure, if the price is $16, the profit maximizing firm will A) choose not to produce. B) produce 10 units. C) produce 50 units. D) produce 35 units. 29) ______ 30) In the above figure, the marginal cost of the last unit produced by the profit maximizing firm is A) $15. B) $20. C) $10. D) $5. 31) In perfect competition, the elasticity of demand for the product of a single firm is A) 1. B) infinite. C) between 0 and 1. D) 0. 30) ______ 31) ______ Marginal Total cost revenue (dollars) (dollars) 30 0 0 25 27 1 27 28 24 2 21 33 21 3 15 40 18 4 9 49 15 5 3 60 12 6 ‐3 73 9 7 ‐9 88 32) Using the data in the above table for a single‐price monopolist, how many units of output will be produced? A) 4 units B) 0 units C) 6 units D) 5 units 33) If the price elasticity of demand is greater than 1, a monopoly's A) marginal revenue is zero. B) total revenue decreases when the firm lowers its price. C) total revenue increases when the firm lowers its price. D) marginal revenue is negative. Price (dollars) Quantity demanded 32) ______ 33) ______ 34) The unregulated, single‐price monopoly shown in the figure above will sell A) less than 30 tickets. B) 100 tickets. C) 30 tickets at the unit price of $2 D) 30 tickets at the unit price of $3.50 34) ______ 35) If the wage rate that a monopoly has to pay for labor services 35) ______ decreases, then its marginal cost curve ________. A) and the demand curve shift rightward B) and the marginal revenue and average total cost curves shift rightward C) shifts rightward and the marginal revenue curve does not change D) shifts rightward and so does the marginal revenue curve 36) In the case of a perfectly price‐discriminating monopoly, there is no 36) ______ A) transfer of consumer surplus to the producer. B) short‐run economic profit. C) deadweight loss. D) long‐run economic profit. 37) If the market served by a monopolistically competitive industry 37) ______ expands, a likely result in the long run will be A) a transition from monopolistic competition to oligopoly. B) a higher ratio of price to average cost. C) a larger number of firms producing a similar product. D) less elastic demand curves facing each firm. 38) In the figure above, assuming that the firm does not shut down, it will charge a price of A) $4. B) $1. C) $3. D) $2. 39) In the dominant firm model of oligopoly, the dominant firm produces the quantity at which its marginal revenue equals A) the price of the product. B) zero. C) its marginal cost. D) its average total cost. 40) Advertising costs are ________ costs and the per unit cost of advertising ________ as production increases. A) variable; does not change B) fixed; decreases C) variable; increases D) fixed; increases 38) ______
39) ______ 40) ______ 41) Rate of return regulation sets the price at a level that enables the regulated firm to earn a specified target percent return on its A) total cost. B) capital. C) sales revenue. D) variable cost. 42) The social interest theory of regulation predicts that the political process seeks to maximize A) producer surplus. B) deadweight loss. C) total surplus. D) consumer surplus. 43) Firms' demand for a particular regulation has a direct relationship with the A) total revenue per firm and the number of firms. B) producer surplus per firm created by the regulation and the number of buyers. C) total revenue per firm and the number of buyers. D) producer surplus per firm created by the regulation and the number of firms. 44) Deregulation of the railroads in the 1980s A) increased consumer surplus and decreased producer surplus. B) increased both consumer and producer surplus. C) decreased both consumer and producer surplus. D) decreased consumer surplus and increased producer surplus. 45) The external benefit of a good A) equals its consumer surplus. B) is the gain from a transaction falling on people who did not participate in the transaction. C) equals its producer surplus. D) equals its total surplus. 46) If a natural monopoly has an average cost pricing rule imposed, the rule will A) maximize total surplus in the regulated industry. B) set price below marginal cost. C) reduce the consumer surplus and generate a deadweight loss when compared to a marginal cost pricing rule. D) generate an economic loss for the regulated firm. 47) When an average cost pricing rule is imposed on a natural monopoly, ________. A) the monopoly makes an economic profit B) total surplus is maximized and the monopoly makes an economic profit C) total surplus is maximized and the monopoly incurs an economic loss D) the monopoly makes a normal profit 41) _______ 42) _______ 43) _______ 44) _______ 45) _______ 46) _______ 47) _______ 48) If a marginal cost pricing rule is imposed on the natural monopoly in 48) _______ the figure above, then "total surplus" will be A) $8 million. B) $16 million. C) $0. D) $4 million. 49) In the above figure, if the natural monopoly maximizes profit then consumer surplus is A) $60 million. B) $108 million. C) $48 million. D) $192 million. 50) The 1930s, the years of the Great Depression, saw A) the repeal of the Sherman Act. B) the extension of the Sherman Act to transportation and communications. C) a sharp reduction in federal regulation. D) a sharp increase in federal regulation. 49) _______ 50) ______ 51) Antitrust laws attempt to A) establish minimum wages. B) prevent monopolies or collusion. C) support prices at high levels so firms can earn profits. D) enforce fair trade laws. Marginal Marginal social Marginal Quantity private benefit benefit private cost (number of (dollars per (dollars per (dollars per students) student) student) student) 1,000 1,000 3,400 1,000 2,000 800 3,200 1,600 3,000 600 3,000 2,200 4,000 400 2,800 2,800 5,000 200 2,600 3,400 52) The table above shows the marginal private benefit, marginal social benefit, and marginal cost of education at the College of Epsilon. What is the efficient number of students at the college? A) 3,000 B) 4,000 C) 1,000 D) 5,000 53) Using the same table above, what is the tuition that will make the number of students equal to the efficient number? A) $2,800 B) $3,200 C) $400 D) $800 Marginal private cost = Quantity Marginal Marginal social marginal social (units) private benefit benefit cost (dollars per (dollars per (dollars per unit) unit) unit) 1,000 70 90 30 2,000 60 80 40 3,000 50 70 50 4,000 40 60 60 5,000 30 50 70 6,000 20 40 80 54) In the table immediately above, if the market is perfectly competitive and unregulated, the equilibrium output will be A) 3,000 units. B) 4,000 units. C) 2,000 units. D) 1,000 units. 55) In the table immediately above, if the market is perfectly competitive and unregulated, the equilibrium price will be A) $60 per unit. B) $70 per unit. C) $110 per unit. D) $50 per unit. 51) ______ 52) ______ 53) ______ 54) ______ 55) ______ 56) In the above figure, if a subsidy is granted to consumers that generates an efficient level of production, then the deadweight loss will be A) $500 B) $1,000. C) $2,000. D) zero. 57) In the figure immediately above, if a subsidy is granted to consumers that generates an efficient allocation of resources, then consumers will pay a net price after the subsidy of A) $20 per unit. B) $5 per unit. C) $10 per unit. D) $15 per unit. 58) In the above figure, if the market is competitive and unregulated, then at the equilibrium amount of output the marginal social benefit is A) equal to the marginal cost to producers. B) equal to the marginal private benefit from consumption. C) greater than the marginal cost to producers. D) less than the marginal cost to producers. 59) To achieve the efficient amount of pollution, governments can set taxes (T) such that ________. A) T = MC + MSC B) MC = MSC + T C) MSC = MC + T D) MSC = MC T 60) The marginal cost of production that is borne by the entire society is called the A) marginal social cost. B) marginal external cost. C) marginal private cost. D) None of the above answers is correct. 61) The quantity of a public good supplied by a private market is A) the quantity that maximizes total public benefit. B) smaller than the efficient quantity. C) larger than the efficient quantity. D) equal to the efficient quantity. 56) ______ 57) ______ 58) ______ 59) ______ 60) ______ 61) ______ 62) For a common resource, efficiency requires that the ________ equals the ________. A) marginal social benefit; marginal cost B) marginal social cost; marginal cost C) marginal private benefit; marginal cost D) marginal private benefit; marginal social benefit 63) An example of a public good is A) a loaf of bread. B) a National Park C) a home computer. D) national defense services. 64) When consumption of a good is nonrival and nonexcludable, the good is a A) public good. B) private good. C) service. D) mixed good. 65) Private markets will not provide the efficient quantity of a public good because A) it is hard to prevent a person from receiving the benefits of a public good even if the person did not pay for the good. B) one person's consumption does not limit another person's consumption. C) of the free‐rider problem. D) All of the above answers are correct. 66) In the political market place, typical voters A) fire bureaucrats who support efficient policies. B) support policies that they think will make the poor better off. C) are sometimes rationally ignorant about a policy. D) are fully informed. 67) A good or service or a resource is excludable if A) its use by one person does not decrease the quantity available for someone else. B) its use by one person decreases the quantity available for someone else. C) it is possible to prevent someone from enjoying its benefits. D) it is not possible to prevent someone from enjoying its benefits. 68) A school of tuna swimming in the ocean is A) nonexcludable and rival. B) excludable and nonrival. C) nonexcludable and D) excludable and rival. nonrival. 69) In which of the following cases does the problem of the commons occur? i) Cattle grazing on private ranches. ii) Catching lobsters off the coast of Florida. iii) Raising salmon on salmon farms. iv) Using legal services provided by the courts. A) i only B) ii and iii C) ii only D) i and iv 62) ______ 63) ______ 64) ______ 65) ______ 66) ______ 67) ______ 68) ______ 69) ______ 70) The mean (average) U.S. family income in 2005 was approximately A) $63,000. B) $150,00 C) $12,000. D) $93,000. 0. 70) ______ 71) In the figure above, the line of equality is A) curve A. B) curve B. C) curve C. D) curve D. 72) In the figure above, the Lorenz curve that shows the least inequality, but NOT perfect equality, is A) curve A. B) curve B. C) curve C. D) curve D. 73) The public education system is an example of A) a negative income tax. B) a subsidized service. C) an income maintenance program. D) an income maintenance program. 74) By human capital, economists mean A) machines that replace humans. B) the accumulated skill and knowledge of humans. C) machines engineered to avoid operator injury. D) humans who perform repetitive tasks. 75) If a tax was instituted such that every dollar collected in taxes from high income households resulted in a distribution of $.80 to low income households A) efficiency and equality of incomes would both increase. B) equality of incomes would increase but efficiency would decrease. C) efficiency and equality of incomes would both decrease. D) efficiency would increase but equality of incomes would decrease. U U 71) ______ 72) ______ 73) ______ 74) ______ 75) ______ 76) The "big tradeoff" refers to the point that governmental redistribution of income causes A) less efficiency because it strengthens incentives to work. B) more efficiency because it strengthens incentives to work. C) more efficiency because it weakens incentives to work. D) less efficiency because it weakens incentives to work. 76) ______ 77) In the above figure, point ________ shows an equal distribution of income, while point ________ shows an unequal distribution of income. A) a, d B) a, b C) b, c D) b, a 78) The U.S. tax system at both the federal and state levels is ________. A) progressive B) regressive C) proportional D) negative Income before Tax plan A Tax plan B Tax plan C tax (dollars) (dollars) (dollars) (dollars) 0 0 0 3,000 20,000 2,000 1,000 3,000 40,000 5,000 2,000 3,000 60,000 10,000 3,000 3,000 80,000 20,000 4,000 3,000 79) The government in the country of Zappoo is trying to decide which tax plan to implement. The table above shows three alternative plans. If the government decides to implement a proportional income tax, it will implement tax plan ________. A) A B) B C) C D) None of the above because none of the above are proportional taxes. 77) ______ 78) ______ 79) ______ 80) When people determine the quantity of education they will undertake, they ________ the external benefits. As a result, if education were left to an unregulated market, people would undertake too ________ education. A) overvalue; little B) overvalue; much C) undervalue; little D) undervalue; much You survived it. Have a good holiday! 80) ______ ...
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