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Unformatted text preview: ECONOMICS 201
FINAL REVIEW
Fall, 2007
V.1
Geoﬀrey Jehle Some of the multiple choice questions on the exam will be very similar to these review
questions. Others will be similar to the review questions you were given before the midterm.
If you can do all of these, all of those, you are on top of all your problem sets and class
material you should be in good shape. 2 Multiple Choice 2. Market demand in a competitive industry is P = 40 − 0.1q . Following imposition of a
tax on producers, the price paid by consumers of this good rises from $13 to $26. Then
the loss in consumer surplus from this tax is
a.
b.
c.
d. $7995.
$1332.5
$2665.
$1998.75 4. Eunjoo’s demand curve for melon de Cavaillon is given by p = 100 − 2q , where q is the
number of melons per week and p is the price per melon. What is the maximum amount
of money Eunjoo would pay to be able to consume 20 melons in a week?
a.
b.
c.
d. 800.00 dollars.
1200.00 dollars.
1600.00 dollars.
4000.00 dollars. 5. Lanzi’s demand curve for truﬀe sous pˆte is given by p = 100 − 10q , where q is the
a
number of truﬄes per week and p is the price per truﬄe. If Lanzi pays a price of $70 per
truﬄe, how much consumer surplus does he enjoy in a week?
a.
b.
c.
d. 33.75 dollars.
22.50 dollars.
45.00 dollars.
112.50 dollars. 6. A perfectly competitive industry is in longrun equilibrium when the government imposes
a lumpsum tax on every ﬁrm in the industry. In the short run, this tax will
a. redistribute welfare from ﬁrms to the government, but will not create a deadweight
loss.
b. redistribute welfare from consumers to the government, and will create a deadweight
loss.
c. redistribute welfare from consumers to the government, but will not create a deadweight loss.
d. redistribute welfare from consumers and ﬁrms to the government, but will not create
a deadweight loss. Multiple Choice 3 7. A perfectly competitive industry is in longrun equilibrium when the government imposes
a lumpsum tax on every ﬁrm in the industry. In the long run, this tax will
a. redistribute welfare from consumers to the government, but will not create a deadweight loss.
b. redistribute welfare from consumers to the government, and will create a deadweight
loss.
c. redistribute welfare from consumers and ﬁrms to the government, but will not create
a deadweight loss.
d. redistribute welfare from ﬁrms to the government, but will not create a deadweight
loss.
8. If, in a market equilibrium, price exceeds marginal cost, we know
a.
b.
c.
d. output is produced under constant returns to scale.
the ﬁrm is advertising heavily.
social welfare exceeds its maximum level.
someone values an additional unit of the good at something more that it would cost
to produce it. 9. Market demand in a perfectly competitive industry is P = 500 − q , and the industry
is initially in longrun equilibrium at a price of $250. If the government imposes a perunit (excise) tax of $40 on every ﬁrm, then once this industry reaches its new longrun
equilibrium, consumers will have suﬀered a loss in consumer surplus from this tax equal
to
a.
b.
c.
d. $
$
$
$ 6900.00
4600.00
9200.00
27600.00 10. Katie has shortrun total cost T C = (0.1)q 2 + 22, and shortrun marginal cost M C =
(0.2)q . If Katie sells 18 units, at a price of $12 per unit, how much producer surplus does
she earn?
a.
b.
c.
d. $122.4
$61.2
$550.8
$183.6 4 Multiple Choice 11. Arielle has weekly total costs T C = q + 12q 2 + 15, and marginal costs M C = 1 + 24q . A
customer oﬀers her a lumpsum payment of $356 in exchange for 6 units of her output.
If Arielle has no other potential customers this week, will she accept the oﬀer?
a. No, because her producer surplus is less than her ﬁxed costs.
b. Yes, because her producer surplus will be positive.
c. She will be indiﬀerent between accepting and refusing because her producer surplus
will be zero.
d. No, because her producer surplus will be negative. $
80
70
60
50
40
30
20
10 D
10 20 30 40 50 60 70 80 90 100 q Figure 1: 13. Jonathan has a monopoly on the truth. Campus demand for the truth is depicted in
Figure 1. What is the equation for that demand curve?
a.
b.
c.
d. P
P
P
P = (9/8) − 80q
= (8/9) − 80q .
= 80 − (8/9)q .
= 1/80 − (8/9)q . 14. A ﬁrm’s demand curve is depicted in Figure 2. What is the (absolutevalue of) price
elasticity along that demand curve when the ﬁrm sells 25 units of output?
a.
b.
c.
d. 33/20
22/15
11/5
11/15 Multiple Choice 5 P
50
45
40
35
30
25
20
15
10
5 D
10 20 30 40 50 60 70 80 90 q Figure 2:
15. A uniformpricing monopoly facing demand P = 30 − 10q has constant marginal cost of
$10. If the government imposes a lumpsum tax of $65 on this ﬁrm, how much output
will the ﬁrm produce?
a.
b.
c.
d. 0.33
2.00
1.00
0.75 units.
units.
units.
units. 16. If M R = $1 where P = $12 along some ﬁrm’s demand curve, then the absolute value of
elasticity of demand at that point on the demand curve is
a.
b.
c.
d. 3/11
4/11
12/11
36/11 17. Ross is a monopolist. Along his demand curve, price is $1 per unit when he sells 100
units. He knows that (the absolute value of) elasticity of demand at 100 units is 1/4.
What is marginal revenue equal to?
a.
b.
c.
d. 9/4
6
3/2
3 6 Multiple Choice 18. A uniformpricing monopoly faces the linear demand curve P = 20 − q . To maximize
total revenue, this ﬁrm should charge a price equal to
a.
b.
c.
d. $10/3
$20/3
$15/2
$10 19. A uniformpricing monopoly faces linear demand of P = 40 − 2q . If marginal cost is
constant and equal to $5 per unit, what level of output maximizes ﬁrm proﬁt?
a.
b.
c.
d. 175/8 units.
35/2 units.
35/8 units.
35/4 units. 20. In longrun equilibrium under monopolistic competition, each ﬁrm produces where
a.
b.
c.
d. P
P
P
P = AC and AC is at its minimum level.
= M C and P = AC .
= M R = M C.
= AC and M R = M C . 22. Monopolistic competition is characterized by
a.
b.
c.
d. few ﬁrms selling a homogeneous product.
two ﬁrms selling a diﬀerentiated product.
many ﬁrms selling a diﬀerentiated product.
many ﬁrms selling a homogeneous product. 23. A uniformpricing monopoly faces linear demand of P = 40 − 5q . Marginal cost is
constant and equal to $30. How much consumer surplus do this ﬁrm’s buyers enjoy?
a.
b.
c.
d. 1.67
0.83
2.50
5.00 dollars.
dollars.
dollars.
dollars. Multiple Choice 7 24. A monopolist faces demand P = 30 − 10q , has constant marginal costs of 15, and has
zero ﬁxed costs. If this monopolist is able to practice perfect price discrimination, its
maximum total proﬁt will be
a.
b.
c.
d. 5.63 dollars.
7.50 dollars.
11.25 dollars.
2.81 dollars. 25. In monopolistic competition, each ﬁrm produces a Paretoeﬃcient level of its output
a.
b.
c.
d. in the short run, but not in the long run.
neither in the short run nor in the long run
in both the short run and the long run.
in the long run, but not in the short run. 26. In order to successfully practice price discrimination, a company must
a.
b.
c.
d. be able to prevent resale of its product.
face an elastic demand curve for its product.
manufacture at least two diﬀerent products.
be in a decreasingcost industry. 27. A monopolist faces a downward sloping demand curve with constant price elasticity of
demand, e, greater than 1 in absolute value. The monopolist seeks to maximize proﬁts.
If her production function exhibits constant returns to scale with unit cost c > 0, then
the price charged, Pm , will satisfy
a.
b.
c.
d. Pm = c/(1 − 1 )
e
Pm = c · (1 − 1 )
e
Pm = c
Pm − c = 1
e 28. A uniformpricing monopoly faces linear demand P = 30 − 2q . Marginal cost is constant
and equal to $10. What is the deadweight loss due to this monopoly?
a.
b.
c.
d. 62.50
50.00
75.00
25.00 dollars.
dollars.
dollars.
dollars. 8 Multiple Choice 30. Casey, a monopolistic competitor, has total costs T C = 4q 2 + 5 and marginal costs
M C = 8q . He currently faces market demand P = 27/2 − 8q for his product. In the
short run, Casey will
a.
b.
c.
d. charge
charge
charge
charge $3 and earn zero proﬁt.
$4 and earn positive proﬁt.
$9 and earn negative proﬁt.
$12 and earn zero proﬁt. $
80
70
60
50
40
30
20
10 D
10 20 30 40 50 60 70 80 90 100 q Figure 3: 32. Katie has a monopoly on righteousness. Campus demand for righteouness is depicted in
Figure 3. If Katie must set a uniform price for righteousness, what is the equation for
her marginal revenue curve?
a.
b.
c.
d. M R = 70 − (28/9)q .
M R = (9/28) − 70q
M R = 1/70 − (28/9)q .
M R = 70 − 140q . Multiple Choice 9 33. Eunjoo enjoys a campus monopoly on Good Taste, which she is able to produce with no
ﬁxed costs at all, and at constant marginal cost of only 16 dollars. In addition, she is so
discerning, and knows her buyers so well, that she can perfectly price discriminate among
them. If campus demand for Eunjoo’s Good Taste is given by p = 40 − 8q , how many
units will she produce and sell?
a.
b.
c.
d. 2
15/2
3/2
3 34. A uniformpricing monopoly facing demand P = 40 − 5q has constant marginal cost of
$5. If the government imposes a perunit tax of $5 on this ﬁrm, how much output will
the ﬁrm produce?
a.
b.
c.
d. 2.25
0.75
3.00
1.50 units.
units.
units.
units. 35. A uniformpricing monopoly facing demand P = 90 − 5q has marginal cost M C = 15q .
If the government imposes a perunit tax of $10 on this ﬁrm, how much output will the
ﬁrm produce?
a.
b.
c.
d. 1.60
3.20
8.00
6.40 units.
units.
units.
units. 10 Multiple Choice $
50
45
40
35
30
25
20
15
10
5 AVC MC D MR
10 20 30 40 50 60 70 80 q 90 100 Figure 4: 36. Consider the monopoly equilibrium depicted in Figure 4. If price controls require this
ﬁrm set its price at or below p =$35, they would
a.
b.
c.
d. cause this ﬁrm to reduce output.
cause this ﬁrm to shut down in the short run.
cause this ﬁrm to increase output.
have no eﬀect on this ﬁrm’s choice of output. 37. A uniformpricing monopoly faces linear demand P = 50 − 2q . Marginal cost is constant
and equal to $10 at every level of output. How much producer surplus does this ﬁrm
enjoy?
a.
b.
c.
d. 50.00 dollars.
400.00 dollars.
500.00 dollars.
200.00 dollars. 40. A uniformpricing monopoly faces linear demand P = 20 − 2q . It has ﬁxed costs of $8
and marginal cost of $10 at every level of output. If regulation requires that this ﬁrm
earn no more than normal (i.e. zero economic) proﬁt, how much output will it produce?
a.
b.
c.
d. 4.00 units.
10.00 units.
0.80 units.
2.50 units. Multiple Choice 11 41. A uniformpricing monopoly faces demand P = 80 − q . It has ﬁxed costs of $20 and
marginal cost M C = 4q. If regulation requires that this ﬁrm charge a price that will
maximize the sum of consumer and producer surplus, what price will it charge?
a.
b.
c.
d. 64.00 dollars.
66.67 dollars.
48.00 dollars.
128.00 dollars. 42. Which form of monopoly regulation can be most beneﬁcial for consumers?
a.
b.
c.
d. price controls.
all forms of regulation can be equally beneﬁcial.
perunit tax.
lumpsum tax. 44. Ross and Rachel produce the same homogeneous product and each has constant marginal
costs of $7. Market demand is linear, with vertical intercept 60 and horizontal intercept
70. Ross and Rachel are Bertrand competitors, so pricing is important to them. What
price will each ﬁrm charge in the unique Nash equilibrium in their market competition?
a.
b.
c.
d. Both ﬁrms charge a price of $6.
One ﬁrm charges $7, the other stays out of the market.
Both ﬁrms charge a price of $20.
Both ﬁrms charge a price of $7. 45. Kartik and Arielle produce the same homogeneous product and each has constant marginal
costs of $7. Market demand is linear, with vertical intercept 40 and horizontal intercept
90. Kartik and Arielle are Bertrand competitors, so each chooses (simultaneously) the
price he or she will charge. What price will each ﬁrm charge in the unique Nash equilibrium in their market competition?
a.
b.
c.
d. Both ﬁrms charge a price of $40/3.
One ﬁrm charges $7, the other stays out of the market.
Both ﬁrms charge a price of $7.
Both ﬁrms charge a price of $6. 12 Multiple Choice 46. Kevin and Lauren are Cournot duopolists facing the common market demand P = 72 −
4Q. Both have zero marginal cost, but Kevin has ﬁxed costs of $49, while Lauren has ﬁxed
costs of $20. How much output does Lauren produce in the market (Nash) equilibrium?
a.
b.
c.
d. 18
3/2
6
15 47. Dan and Lauren are Cournot duopolists facing the common market demand P = 20−16Q.
Both have zero ﬁxed cost, but Dan has constant marginal costs of $8, while Lauren has
constant marginal costs of $10. How much output does Lauren produce in the market
(Nash) equilibrium?
a.
b.
c.
d. 5/12
1/9
1/24
1/6 48. Casey and Asya are Cournotcompetitors facing the common market demand P = 3 −
(1/18)q . Marginal cost is zero for both ﬁrms. What is the deadweight loss due to their
oligopoly?
a.
b.
c.
d. 22.50 dollars.
6.00 dollars.
9.00 dollars.
18.00 dollars. 49. Kyle and Katie are Cournotcompetitors facing the common market demand P = 15 −
(1/15)q . Marginal cost is zero for both ﬁrms. How much proﬁt does Katie earn in the
Nash equilibrium?
a.
b.
c.
d. 750.00 dollars.
375.00 dollars.
1125.00 dollars.
93.75 dollars. Multiple Choice 13 50. Cournot duopolists face the common market demand P = 80 − 3Q, where Q is the
combined output of both ﬁrms. If each ﬁrm has marginal and ﬁxed costs of zero,
a.
b.
c.
d. no Nash equilibrium exists in this market.
each ﬁrm produces the same positive level of output in the Nash equilibrium.
a Nash equilibrium exists, but it can not be calculated.
each ﬁrm produces output of zero in the Nash equilibrium. 51. Cournot duopolists face the common market demand P = 72 − 10Q, where Q is the
combined output of both ﬁrms. If each ﬁrm has marginal and ﬁxed costs of zero,
a.
b.
c.
d. the market equilibrium will involve no deadweight loss.
the market equilibrium will involve a deadweight loss.
market price will equal marginal cost for both ﬁrms.
the market equilibrium is eﬃcient with at least two ﬁrms in the market. 52. In a Bertand duopoly, ﬁrms compete by
a.
b.
c.
d. choosing
choosing
choosing
choosing to enter or exit the market.
their prices.
the quantity they will sell.
to lead or follow. 53. In a Stackelberg duopoly, when both ﬁrms face a common market demand curve and
have identical constant marginal costs,
a.
b.
c.
d. the follower will charge a lower price than the leader.
the ﬁrm charging the lowest price gets the entire market.
the leader will produce more output than the follower.
neither ﬁrm would beneﬁt from being the leader. 54. Consider the Cournot, Bertrand, and Stackelberg models of oligopoly behavior. Which
of these predict that jointmonopoly, or collusion, is the most likely market outcome?
a.
b.
c.
d. Cournot.
Bertrand and Stackelberg.
Neither Cournot, Bertrand nor Stackelberg.
Stackelberg. 14 Multiple Choice q2
50 Firm 1’s
40
30
20
10 Firm 2’
10 20 30 40 50 q1 Figure 5:
56. Reaction functions for two Cournotcompetitors are given in Figure 5, where q1 is the
output of Firm 1, and q2 the output of Firm 2. If Firm 2 were to sell 24 units of output,
Firm 1’s best response would be to sell
a.
b.
c.
d. 10 units.
44/3 units.
10/3 units.
25 units. 57. Arjun and Asya are Cournot duopolists facing the common market demand P = 24−20Q.
Both have zero ﬁxed cost, but each has constant marginal cost of $10. How much output
does Asya produce in the market (Nash) equilibrium?
a.
b.
c.
d. 7/120
7/60
7/12
7/30 61. According to the First Welfare Theorem,
a.
b.
c.
d. everyone can be made better oﬀ by income transfers from richer to poorer agents.
competition will eventually lead to overall equality of incomes.
competitive market equilibria are Pareto eﬃcient.
competitive market equilibria are not Pareto eﬃcient. Multiple Choice 15 62. According to the Second Welfare Theorem,
a. any Pareto eﬃcient outcome can be achieved through competition and appropriate
redistribution.
b. Pareto eﬃcient outcomes will not be valued by society.
c. competitive market equilibria can sometimes be unstable.
d. competitive market equilibria are usually equitable. Y
10 2
8
6
4
2 1
2 4 6 8 10 12 14 X Figure 6:
The next four (4) questions refer to the Edgeworth box economy of Figure 6. Corners labeled
“1” and “2” indicate origins for Agent 1 and Agent 2, respectively. The heavy line running
from southwest to northeast is the contract curve for these two traders.
66. If Agent 1’s endowment contains 1 unit of X and 8 units of Y , then Agent 2’s endowment
must contain
a.
b.
c.
d. 14 units of X and 10 units of Y
14 units of X and 2 units of Y .
15 units of X and 10 units of Y .
1 unit of X and 8 units of Y . 16 Multiple Choice 67. Once again suppose that Agent 1’s endowment contains 1 unit of X and 8 units of Y . If
a trade were proposed that would result in the allocation
A= 8
7
,
4
6 then
a.
b.
c.
d. Neither Agent 1 nor Agent 2 would agree to the trade.
Agent 1 would agree to the trade, but Agent 2 would refuse it.
Both Agent 1 and Agent 2 would agree to the trade.
Agent 2 would agree to the trade, but Agent 1 would refuse it. 68. Once again suppose that Agent 1’s endowment contains 1 unit of X and 8 units of Y . If
a trade were proposed that would result in the allocation
A= 15
0
,
6
4 then
a.
b.
c.
d. Neither Agent 1 nor Agent 2 would agree to the trade.
Agent 1 would agree to the trade, but Agent 2 would refuse it.
Both Agent 1 and Agent 2 would agree to the trade.
Agent 2 would agree to the trade, but Agent 1 would refuse it. 69. Once again suppose that Agent 1’s endowment contains 1 unit of X and 8 units of Y . If
a trade were proposed that would result in the allocation
A= 10
5
,
8
2 then
a.
b.
c.
d. Both Agent 1 and Agent 2 would agree to the trade.
Agent 2 would agree to the trade, but Agent 1 would refuse it.
Neither Agent 1 nor Agent 2 would agree to the trade.
Agent 1 would agree to the trade, but Agent 2 would refuse it. Multiple Choice 17 Y
10 2
8
6
4
2 1
2 4 6 8 10 12 14 X Figure 7:
The next two (2) questions refer to the Edgeworth box economy of Figure 7. Corners labeled
“1” and “2” indicate origins for Agent 1 and Agent 2, respectively. The heavy line running
from southwest to northeast is the contract curve for these two traders.
70. Suppose that Agent 1’s endowment contains 12 units of X and 2 units of Y . In this
economy, the allocation
0
15
B=
,
0
10
a.
b.
c.
d. is
is
is
is Pareto eﬃcient, but is not in the core
Pareto eﬃcient for Agent 1, but not for Agent 2.
Pareto eﬃcient and is in the core.
not Pareto eﬃcient, and is not in the core. 71. Once again suppose that Agent 1’s endowment contains 12 units of X and 2 units of Y .
If this Edgeworth box economy were a perfectly competitive market system, then the
following would be a Walrasian equilibrium (marketclearing) relative price of X
a.
b.
c.
d. px /py
px /py
px /py
px /py = 2/5.
= 2/15.
= 6/5.
= 1/10. 18 Multiple Choice 72. Katie, a proﬁtmaximizing, pricetaking√
producer, makes output, q , from labor, l, ac√
cording to the production function q = 8 l, where M P L = 8/(2 l). If the market wage
of labor is $5, and the market price of output is $10, how much output does Katie want
to sell?
a.
b.
c.
d. 64/3 units.
128/3 units.
192 units.
64 units. 73. Arielle, a proﬁtmaximizing, pricetaking producer, makes output, q , from labor, l, ac√
√
cording to the production function q = 9 l, where M P L = 9/(2 l). If the market wage
of labor is $6, and the market price of output is $84, how much labor does Arielle want
to hire?
a.
b.
c.
d. 3969 units.
2646 units.
19845/2 units.
3969/2 units. 74. Arielle, a utilitymaximizing, pricetaking worker/consumer, gets utility from consuming
goods, q , and disutility from hours of labor, l, according to the utility function u(l, q ) =
8q − 4l2 , where M Uq = 8 and M Ul = −8l. Arielle owns some stock and gets dividend
(proﬁt) income of $7 every day. If the market wage of labor is $19 per hour, and the
market price of output is $1, how much does Arielle want to work each day?
a.
b.
c.
d. 4 hours.
17 hours.
19 hours.
2 hours. Multiple Choice 19 75. Daniel, a utilitymaximizing, pricetaking worker/consumer, gets utility from consuming
goods, q , and disutility from hours of labor, l, according to the utility function u(l, q ) =
4q − 2l2 , where M Uq = 4 and M Ul = −4l. Daniel owns some stock and gets dividend
(proﬁt) income of $24 every day. If the market wage of labor is $54 per hour, and the
market price of output is $3, how much of the consumption good does Daniel want to
buy each day?
a.
b.
c.
d. 332
664
287
336 units.
units.
units.
units. 76. Eunjoo lives in an Edgeworth box, even though she inherited an endowment of 6 units
of X and 2 units of Y . Eunjoo’s utility function is u(x, y ) = x3/4 y 1/4 , where M Ux =
(3/4)(y/x)1/4 and M Uy = (1/4)(x/y )3/4 . If Eunjoo faces Walrasian equilibrium (WE)
prices p∗ = $10 and p∗ = $2, then her Walrasian equilibrium allocation (WEA) will
x
y
contain
a.
b.
c.
d. 12 units of X and 16 units of Y .
24/5 units of X and 8 units of Y .
6/5 units of X and 6 units of Y .
8/5 units of X and 2 units of Y . 77. Like everyone else in this economy, Jonathan consumes just two goods. His utility function is u(x, y ) = x1/2 y 1/2 , where M Ux = (1/2)(y/x)1/2 and M Uy = (1/2)(x/y )1/2 . Everyone is agreed that the best Pareto eﬃcient allocation of goods in this economy will give
Jonathan 7 units of X and 10 units of Y . Then Walrasian equilibrium relative prices
that could support this allocation as a market equilibrium allocation are
a.
b.
c.
d. (p∗ /p∗ ) = 5/14.
x
y
(p∗ /p∗ ) = 20/7.
x
y
(p∗ /p∗ ) = 10/7.
x
y
(p∗ /p∗ ) = 30/7.
x
y 78. An allocation of goods to agents is called “fair” if it
a.
b.
c.
d. is envyfree and Pareto eﬃcient.
is envyfree.
is Pareto eﬃcient.
represents equal division of all goods. 20 Multiple Choice C
C
79. Chris has utility function uC (x, y ) = x1/2 y 1/2 , where M Ux = (1/2)(y/x)1/2 and M Uy =
K
(1/2)(x/y )1/2 . Katie has utility function uK (x, y ) = x1/3 y 2/3 , where M Ux = (1/3)(y/x)2/3
K
and M Uy = (2/3)(x/y )1/3 . If 9 units of X and 8 units of Y are to be divided between
them, one fair allocation would a.
b.
c.
d. give
give
give
give Chris
Chris
Chris
Chris 27/5 units of X and Katie 18/5 units of X .
54/5 units of X and Katie 9/5 units of X .
9/5 units of X and Katie 36/5 units of X .
54/5 units of X and Katie 9/5 units of X . 82. In a twomarket perfectly competitive economy, Walras’ law assures us that
a. there can never be excess supply in any market, only excess demand.
b. when demand equals supply in one market, demand will equal supply in the other
market, too.
c. when there is excess demand in one market, there will be excess demand in the other
market, too.
d. when there is excess supply in one market, there will be excess supply in the other
market, too.
83. In a twogood economy, the market price of X is px = $7 and the market price of Y is
py = $7. In the X market, quantity demanded is less than quantity supplied by 9 units.
Then we know that in the Y market,
a.
b.
c.
d. quantity
quantity
quantity
quantity demanded
demanded
demanded
demanded is less than quantity supplied by 27/4 units.
exceeds quantity supplied by 3 units.
is less than quantity supplied by 27 units.
exceeds quantity supplied by 9 units. 85. According to the Coase Theorem, when parties are able to bargain costlessly in the
presence of externalities,
a.
b.
c.
d. any complete assignment of property rights will result in an eﬃcient level of output.
resources will often be wasted on bargaining.
an eﬃcient, though suboptimal, allocation of property rights will result.
the assignment of property rights will have no eﬀect on the distribution of welfare. Extra Space for Scratch 21 86. Good q is produced and consumed in a perfectly competitive market. If consumption of
this good involves positive externalities, the market equilibrium level of output will be
a.
b.
c.
d. greater than the Pareto eﬃcient level of output.
sometimes greater, and sometimes less, than the Pareto eﬃcient level of output.
less than the Pareto eﬃcient level of output.
equal to the Pareto eﬃcient level of output. 88. In a competitive industry output, q , is produced at marginal private cost
M P C = 2q.
Production of this good also generates negative externalities, so that the full marginal
social cost of its production is
M SC = 3q.
Consumer demand for industry output is
P = 240 − 2q.
A perunit Pigovian tax that would yield the eﬃcient level of output as the posttax
market equilibrium is:
a.
b.
c.
d. 120 per unit.
16 per unit.
48 per unit.
24 per unit. 89. To determine the eﬃcient quantity of a (pure) public good, government must
a. tax everyone equally.
b. tax according to each person’s willingness to pay.
c. ﬁnd the quantity where the vertical sum of individuals’ demand curves intersects the
marginal cost of producing the good.
d. ﬁnd the quantity where the horizontal sum of individuals’ demand curves intersects
the marginal cost of producing the good. ECONOMICS 201
FINAL REVIEW 1 ANSWERS
V.1
Geoﬀrey Jehle 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. C
C
C
A
B
D
C
D
D
C
C
C
C
D
D
D
D
C
C
C
B
A
A
D
C
A
D
C
B
D
D 38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74. A
A
A
D
C
C
D
C
B
B
B
B
C
C
A
D C
A B
C
B
D
A
A
D
A
C 2
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89. A
B
C
A
A B
D
A
C
C
C ...
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This note was uploaded on 04/26/2010 for the course ECON 101 taught by Professor Staff during the Spring '08 term at Vassar.
 Spring '08
 Staff
 Economics, Microeconomics

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