211finalfall03

211finalfall03 - ECONOMICS 211 FINAL EXAMINATION Fall 2003(3 hours 200 points Circle the name of your instructor Soligo Nal Gilbert Nesbitt Wu

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ECONOMICS 211 FINAL EXAMINATION Fall 2003 (3 hours, 200 points) Circle the name of your instructor: Soligo Nal Gilbert Nesbitt Wu Vasudev NAME: ______________________________________________ PLEDGE:____________________________________________________________________ _____________________________________________________________________________ _______________________________________________________________________________ I. MULTIPLE CHOICE (Circle the correct answer) [3 POINTS EACH, 18 POINTS TOTAL] 1. For a market to be perfectly competitive it must be true that a) transaction costs are low. b) there is free-entry and -exit of firms from the market. c) buyers and sellers know the prices charged by firms. d) consumers believe that all firms in the market sell identical goods. e) all of the above. 2. Chris consumes twice as much fish as beef although the two products sell at the same price per pound. Under these circumstances we can conclude that, in equilibrium, Chris’ additional satisfaction from consuming an extra pound of beef is: a) Greater than that from consuming an extra pound of fish. b) Less than that from consuming an extra pound of fish. c ) The same as that from consuming an extra pound of fish. ???????? d) Impossible to tell, since we don’t exactly know how much Chris is consuming. 3. The market demand curve for bananas is perfectly elastic and the market supply curve has positive slope. An increase in the supply has which of the following effect? a) Price decreases and quantity remains the same. b) Price increases and quantity decreases. c) Price remains the same and quantity decreases. d) Price remains the same and quantity increases.
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4. According to the Coase Theorem, when transactions costs are zero a) taxes and subsidies are necessary to achieve the efficient outcome. b) the economy will produce too much of a good that generates a negative externality. c) if property rights are properly defined, the market will produce the efficient outcome. d) the economy will produce too little of a good that generates a negative externality. 5. A public good in economics is best defined as a good: a) produced by a publicly-owned corporation and distributed at a zero price. b) produced by a public utility whose rates are government controlled. c) that entails zero production costs and thus should be allocated to the public at a zero price. d) for which the extent of consumption by one person does not reduce the amount available for others. e) that entails rising production costs. II. TRUE, FALSE or AMBIGUOUS? EXPLAIN WHY [5 POINTS EACH, 15 POINTS TOTAL] 6. The Law of Diminishing Marginal Returns means that, in the long run, if a firm increases all of its inputs proportionately, the marginal increase in output will eventually decrease. Ambiguous, this law says that with each additional unit of variable input yields less and less additional output. 7. The marginal rate of substitution between perfect substitutes decreases constantly along any indifference curve. No, curve is convex: Under the standard assumption of neoclassical economics that goods and services are continuously divisible, the marginal rates of substitution will be the same regardless of the direction of exchange, and will correspond to the slope of an indifference curve (more precisely, to the slope multiplied by -1) passing through the endowment in question, at that endowment. Further on this assumption, or otherwise
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This note was uploaded on 04/07/2008 for the course ECON 211 taught by Professor Na during the Spring '08 term at Rice.

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211finalfall03 - ECONOMICS 211 FINAL EXAMINATION Fall 2003(3 hours 200 points Circle the name of your instructor Soligo Nal Gilbert Nesbitt Wu

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