EC101A1Miterm2version3

EC101A1Miterm2version3 - Boston University Version 0 3...

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Unformatted text preview: Boston University Version 0 3 EC101, Fall 2009 Professor Todd Idson Midterm #2 INSTRUCTIONS: Mark on your scantron the letter of the choice that best completes the statement or answers the question. Please fill in your ID and NAME information on the scantron (be sure to write this information in the boxes AND fill in the bubbles). There are 40 questions on the exam, each question counting for 2.5 points. You may keep the exam and use it as scrap paper. 1. Which of the following is not a reason why government agencies subsidize basic research? a. The social benefit of additional knowledge is perceived to be greater than the cost of the subsidies. b. The general knowledge developed through basic research can be used without charge. c. The private market devotes too few resources to basic research. d. The government wants to attract the brightest researchers away from private research firms. 2. Governments can grant private property rights over resources that were previously viewed as public, such as fish or elephants. Why would governments want to do so? a. to prevent overuse b. to fight poverty 0. to increase consumption d. to decrease taxes 3. An AM radio transmission of a baseball game is excludable and rival in consumption. not excludable and not rival in consumption. not excludable and rival in consumption. excludable and not rival in consumption. 9-991» Figure 9-6 Price of Carnations $14 Domestic Supply 12 10 Worid Price Domestic Demand 100 200 300 400 500 600 Quantity of Carnations (in dozens) 4. Refer to Figure 9-6. Before the tariff is imposed, this country a. exports 200 camations. b. imports 400 carnations. c. exports 400 camations. d. imports 200 camations. 5. Corrective taxes are unlike most other taxes because they a. move the allocation of resources away from the social optimum. b. move the allocation of resources closer to the social optimum. c. distort incentives. d. raise revenue for the government. 6. The Coase theorem suggests that private markets may not be able to solve the problem of extemalities a. if some people benefit from the extemality. b. if the government does not become involved in the process. 0. if the firm in the market is a monopoly. (1. when the number of interested parties is large and bargaining costs are high. Figure 13-9 The figure below depicts average total cost fimctions for a firm that produces automobiles. Average Total Cost {3) Quantity of Automobfies per day 7. Refer to Figure 13-9. Which curve represents the long-run average total cost? a. ATCC b. ATCA c. ATCB d ATCD Figure 9-2 Price of Baskets $14 Domestic SUPPEY World Price Domestic 8. Refer to Figure 9—2. As a result of trade, total surplus increases by a. $80. b. $97.50. c. $495.50. d. $162.50. Figure 10-9 Supply P1 Demand Q 1 Quantity Social cost P4 P5 P4 Social value Q2 Q3 Qua"!in Q4 Q5 Quantity 9. Refer to Figure 10-9. The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the market for antibiotics is shown in a. Panel (a). b. Panel (b). 0. Panel (c). d. Both (b) and (c) are correct. 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 resident’s willingness to pay for each acre of the park. Acres Ed Jim Tony 1 $12 $16 $28 2 8 12 24 3 4 8 2O 4 2 4 16 5 0 1 12 6 O 0 8 7 0 0 4 10. 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. 2 acres b. 0 acres c. 3 acres (1. 1 acre 11. Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government will sell 40 pollution permits for $75 each. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. Neither firm produces any less output, but they both conform to the law. It is likely that between the cost of permits and the cost of additional pollution abatement, a. Firm A will spend $4,000. b. Firm A will spend $4,500. c. Firm B will spend $3,000. d. Firm B will spend $3,500. 12. Dolores used to work as a high school teacher for $40,000 per year but quit in order to start her own catering ‘ business. To invest in her factory, she withdrew $20,000 from her savings, which paid 3 percent interest, and borrowed $3 0,000 from her uncle, whom she pays 3 percent interest per year. Last year she paid $25,000 for ingredients and had revenue of $60,000. She asked Louis the accountant and Greg the economist to calculate her profit for her. a. Louis says her profit is $66,500, and Greg says her costs are $66,500. b. Louis says her profit is $75,000, and Greg says her costs are $41,500. c. Louis says her costs are $25,900, and Greg says her costs are $66,500. d. Louis says her costs are $25,000, and Greg says her costs are $65,000. 13. 14. 15. 16. 17. 18. In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue? a. The price elasticity of demand is small, and the price elasticity of supply is large. b. The price elasticity of demand is large, and the price elasticity of supply is small. 0. The price elasticity of demand and the price elasticity of supply are both large. d. The price elasticity of demand and the price elasticity of supply are both small. When marginal cost is less than average total cost, marginal cost must be falling. average total cost is falling. average variable cost must be falling. average total cost is rising. 999‘?” Scenario 13-1 Joe wants to start his own business, which will require that he purchase a factory that costs $400,000. Joe currently has $500,000 in the bank earning 3 percent interest per year. Refer to Scenario 13—1. If Joe purchases the factory with his own money, what is the annual implicit opportunity cost of purchasing the factory? a. $12,000 b. $0 0. $3,000 d. $15,000 Jane decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $3 0,000, $40,000, and $45,000. What is Jane's economic profit from running her own business? a. $20,000 b. $5,000 c. $-55,000 d. $—5,000 Constant returns to scale occur when a firm’s a. long-run average total costs do not vary as output increases. b. long-run average total costs are decreasing as output increases. c. long-run average total costs are increasing as output increases. d. marginal costs are constant as output increases. A firm has a fixed cost of $200 in its first year of operation. When the firm produces 99 units of output, its total costs are $4,000. The marginal cost of producing the 100th unit of output is $700. What is the total cost of producing 100 units? a. $4,700 b. $4,200 0. $900 d. $4,900 19. 20. 21. 22. Table 13-3 Number of Workers Marina! Product Refer to Table 13-3. What is total output when 2 workers are hired? a. 30 b. 40 c. 70 d. 120 A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the a. supply curve for paper would shift to the left. b. supply curve for paper would shift to the right. c. demand curve for paper would shift to the right. d. demand curve for paper would shift to the left. When the nation of Worldova allows trade and becomes an exporter of silk, a. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova rises. b. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova falls. 0. residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova falls. (1. residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well—being of Worldova rises. Assume, for Singapore, that the domestic price of soybeans without international trade is higher than the world price of soybeans. This suggests that, in the production of soybeans, a. other countries have a comparative advantage over Singapore and Singapore will import soybeans. b. other countries have a comparative advantage over Singapore and Singapore will export soybeans. c. Singapore has a comparative advantage over other countries and Singapore will export soybeans. (1. Singapore has a comparative advantage over other countries and Singapore will import soybeans. Figure 7-4 170 160 150 140 130 120 110 100 90 80 70 60 50 40 3o 20 10 2 456 8 10 12 l4 16 18 20 22 242526 28 30 Quantity 23. Refer to Figure 7-4. If the government imposes a price floor of $120 in this market, then consumer surplus will decrease by a. $75. b. $300. 0. $225. d. $125. 24. Whenever marginal cost is greater than average total cost, a. average total cost is rising. b. marginal cost is falling. c. average total cost is falling. (1. Both b and c are correct. 25. Many species of animals are common resources, and many must be protected by law to keep them from extinction. Why is the cow not one of these endangered species even though there is such a high demand for beef? a Cows reproduce at a high rate and have adapted well to their environment. b. Cows are privately owned, whereas many endangered species are owned by no one. c. There is a natural ecological balance between the birth rate of cows and human consumption. d. Public policies protect cows from predators and diseases. Table 7-6 The following table represents the costs of five possible sellers. Abby Bobby Carlos Dianne Evalina 26. Refer to Table 7-6. If the market price is $900, the producer surplus in the market is a. $350. b. $1,000. 0. $750. d. $550. 27. If a firm produces nothing, which of the following costs will be zero? a. total cost b. variable cost c. opportunity cost d. fixed cost Figure 13-4 H.— o... ~wamo~xxooxo 123456789101112Quamiry 28. Refer to Figure 13-4. Curve A is always declining because of a. the fact that decreasing marginal product follows increasing marginal product. b. the fact that increasing marginal product follows decreasing marginal product. 0. dividing fixed costs by higher and higher levels of output. d. diminishing marginal product. 10 29. 30. 31. 3.2. 33. 34. When a country allows trade and becomes an importer of steel, a. the gains of the domestic producers of steel exceed the losses of the domestic consumers of steel. b. the losses of the domestic producers of steel exceed the gains of the domestic consumers of steel. c. the losses of the domestic consumers of steel exceed the gains of the domestic producers of steel. (1. the gains of the domestic consumers of steel exceed the losses of the domestic producers of steel. Flu shots provide a positive extemality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct? a. The current output level is inefficiently low. b. A per—shot subsidy could turn an inefficient situation into an efficient one. c. At the current output level, the marginal social benefit exceeds the marginal private benefit. (1. All of the above are correct. Economists tend to see ticket scalping as a. a way for a few to profit without producing anything of value. b. a way of increasing the efficiency of ticket distribution. 0. an inequitable interference in the orderly process of ticket distribution. d. an unproductive activity which should be made illegal everywhere. David walks Carolyn’s dog once a day for $50 per week. Carolyn values this service at $60 per week, while the opportunity cost of David’s time is $30 per week. The government places a tax of $35 per week on dog walkers. Before the tax, what is the total surplus? a. $30 b. $25 0. $50 d. $60 Suppose that a small county is considering adding a guard rail to a dangerous curve by a river. The guard rail will cost $70,000. The average damage done to vehicles that slide off the road at the curve is $10,000. It is expected that the guard rail will prevent 5 vehicles from sliding off the road during its usable life. What should the county do? a. Install the guard rail because the benefits exceed the costs. b. Do not install the guard rail at any cost because drivers can purchase private insurance for their vehicles. 0. Install the guard rail because safety is priceless. d. Do not install the guard rail because the costs exceed the benefits. A positive externality arises when a person engages in an activity that has a. a beneficial effect on a bystander who pays the person who causes the effect. b. an adverse effect on a bystander who is compensated by the person who causes the effect. c. an adverse effect on a bystander who is not compensated by the person who causes the effect. (1. a beneficial effect on a bystander who does not pay the person who causes the effect. 11 35. If an allocation of resources is efficient, then a. the allocation achieves equality as well. b. consumer surplus is maximized. c. producer surplus is maximized. d. all potential gains from trade among buyers are sellers are being realized. 36. Henry George argued that the government should raise a. tax revenue from multiple and diverse taxes. b. all of its revenue from a tax on land. 0. most of its revenue from consumption taxes. d. all of its revenue from taxes on labor. 37. In the long run Firm A incurs total costs of $1,200 when output is 30 units and $1,400 when output is 40 units. Firm A exhibits ’ a. economies of scale because average total cost is falling as output rises. b. diseconomies of scale because total cost is rising as output rises. c. diseconomies of scale because average total cost is rising as output rises. d. economies of scale because total cost is rising as output rises. 38. When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing a. diminishing marginal product. b. diminishing labor. 0. diminishing output. d. negative marginal product. Figure 7-7 Q 1 Q2 Quantity 39. Refer to Figure 7-7. Which area represents the increase in producer surplus when the price rises from P1 to P2? a. ABGD b. BCG c. AHGB d. ACH 12 Figure 7-2 Quantin 40. Refer to Figure 7-2. Which area represents the increase in consumer surplus when the price falls from P1 to P2? a. BCGD b. DFG c. ACG d. ABD Table 13-7 Fixed Costs 41. Refer to Table 13-7. The average variable cost of producing four widgets is a. $3.33. b. $5.00. 0. $2.50. (:1. $2.00. 42. Total surplus is represented by the area under the supply curve and up to the price. above the supply curve and up to the price. between the demand and supply curves up to the point of equilibrium. under the demand curve and above the price. 9-9.0“? l3 43. 44. 45. Figure 7-12 12 l3 14 15 16 17 18 19 20 21 22 23 24 25 1234567891011 Quantity Refer to Figure 7-12. If the government imposes a price floor of $120 in this market, then total surplus will decrease by a. $600. b. $125. 0. $225. (1. $0. The marginal product of an input in the production process is the increase in a. quantity of output obtained from an additional unit of that input. b. total revenue obtained from an additional unit of that input. c. profit obtained from an additional unit of that input. d. total revenue obtained from an additional unit of that input. Suppose that meat producers create a negative externality. What is the relationship between the equilibrium quantity and the socially optimal quantity of meat to be produced? a. The equilibrium quantity is less than the socially optimal quantity. b. The equilibrium quantity is greater than the socially optimal quantity. 0. They are equal. d. There is not enough information to answer the question. 14 46. Reggie, Rachael, and Rudy all enjoy looking at flowers blooming in gardens in their neighborhood. The neighborhood association is considering planting a flower garden around the sign at the entrance to the neighborhood. Reggie values the garden at $20, Rachael at $35, and Rudy at $50. The flowers and labor for the garden cost $85. What should the neighborhood association do? Plant the garden because people like flowers. Do not plant the garden because the costs outweigh the benefits. Plant the garden because the benefits outweigh the costs. Do not plant the garden in order to prevent the Tragedy of the Commons problem of overuse. 9-9.0“? 47. Thirsty Thelma owns and operates a small lemonade stand. When Thelma is producing a low quantity of lemonade she has few workers and her equipment is not being fully utilized. Because she can easily put her idle resources to use, a. the marginal cost of one more glass of lemonade is smaller than if output were high. b. the marginal cost of an extra worker is large. c. her lemonade stand is likely to be crowded with workers. (1. the marginal product of an extra worker is small. Figure 8—5 Suppose that the government imposes a tax of P3 - Pl. Q2 Q1 Quanligr 48. Refer to Figure 8—5. The loss in total welfare that results from the tax is represented by area a. C+H. b. D+H+F. c. A+B+D+F. d. A+B+C. 49. The overuse of a common resource relative to its economically efficient use is called a public good. the Tragedy of the Commons. the free rider problem. cost-benefit analysis. 9-957!” 15 50. Suppose Jan started up a small lemonade stand business last month. Variable costs for J an's lemonade stand now include the cost of a. hiring an artist to design a logo for her sign. b. lemons and sugar. 0. building the lemonade stand. d. All of the above are correct. 16 ...
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This note was uploaded on 10/11/2011 for the course EC 101 taught by Professor Idson during the Spring '08 term at BU.

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EC101A1Miterm2version3 - Boston University Version 0 3...

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