Spring 2003 Final Exam
- Toys, in general, are considered normal goods. Ceteris paribus, which of the following would tend to increase the equilibrium quantity of toys and decrease the equilibrium price of toys?
- Consumers get larger than expected Christmas bonuses.
- An influenza outbreak reduces work time and consumer income.
- The price of plastic, an input in toy manufacturing, decreases.
- Wages for employees in toy manufacturing increase.
- The price of batteries increases.
Question 2 refers to the following diagram.
2. The above figure shows a consumer’s budget line in 2002. As a result of income and price changes, the consumer faces a new line in 2003. Assume that preferences are unchanged from 2002 to 2003. If the consumer’s consumption bundle in 2002 was represented by point W, then in 2003 the consumer:
a is definitely better off.
b is definitely worse off.
c is just as well off, but not any better off.
d is at least as well off, perhaps better off.
e could be better off, worse off, or just as well off. The answer is indeterminate.
3. If a market is efficient, then
a the market allocates output to the buyers that the value it the most.
b the market allocates buyers to the sellers who can produce the good at least cost.
c The quantity produced in the market maximizes the sum of consumer and producer surplus.
d All of the above.
e None of the above.
For questions 4- 5, use the accompanying table.
Labor Hours needed to make one unit of: Amount produced in 120 hours:
Perfume Cloth Perfume Cloth
(bottles) (yards) (bottles) (yards)
Nancy 6 8 20 15
Roger 5 10 24 12
4. Refer to the tables shown. The opportunity cost of 1 bottle of perfume for Nancy is
a 4/3 yards of cloth.
b 2 yard of cloth
c 1 yard of cloth.
d 1/4 yard of cloth.
e 3/4 yard of cloth.
5. Refer to the tables shown. For Roger the opportunity cost of 1 yard of cloth is
a. 3/2 bottles of perfume.
b. 2 bottles of perfume.
c. 1/2 bottle of perfume.
d. 1 bottles of perfume.
e. 1/4 bottle of perfume.
6. Let η represents the income elasticity, which of the following statement is correct:
a -∞ ≤ η < 0 ↔ Normal Good.
b +∞ ≥ η ≥ 0 ↔ Normal Good
c +∞ ≥ η > 1 ↔ Necessity Good.
d 1 ≥ η ≥ 0 ↔ Inferior Good.
e 1 ≥ η ≥ 0 ↔ Luxury Good.
7. When the price of a good decreases, ceteris paribus, the lower price
a. generally encourages the consumption of inferior goods.
b. leads to a parallel shift of the linear budget constraint.
c. will necessarily lead to a decrease in the consumption of goods whose price did not change.
d. expands the consumer's set of buying opportunities.
e. Leads to a loss in well-being since they can no longer purchase the same bundle that they had previously.
8. If the total cost function is given by: Total Cost = 75 + 14*Q – 6*Q2 + Q3, then the average total cost is
a. 75
b. 75+ 14Q
c. 14 – 6Q + Q2
d. 75/Q + 14 – 6Q + Q2
e. 75 + 14*Q – 6*Q2
Use the following table of numbers to answer questions 9-12
Total Average Marginal
Quantity Price Revenue Revenue Revenue
1 35 35
2 64 32 29
3 29
4 17
5 23 11
6 120
7 17 -1
8 -7
9 99 11 -13
10 8 80
9. If the monopolist sells 8 units of its product, how much revenue will it receive from the sale?
a. -56
b. 40
c. 60
d. 112
e. Can't tell from the information provided.
10. If the monopolist wants to maximize its revenue, how many units of its product should it sell?
a. 5
b. 6
c. 7
d. 9
e. 10
11. What is the average revenue received from selling 4 units of the monopolist's product?
a. 17
b. 23
c. 25
d. 26
e. 29
12. What is the marginal revenue for the monopolist for the sixth unit sold?
a. 5
b. 11
c. 14
d. 17
e. 20
13. Consider the diagram above. The consumer’s initial position is A. After the decline in the price of good x, the consumer selects consumption bundle B. From the graphical decomposition of the price effect, we can conclude that:
a. Good x is a normal good over the relevant range and that the substitution effect and income effect reinforce each other. Therefore, the ordinary demand curve for good x is downward sloping.
b. Good x is an inferior good over the relevant range and that the income effect only partially offsets the substitution effect. Therefore, the ordinary demand curve for good x is downward sloping.
c. Good x is an inferior good over the relevant range and that the income effect completely overwhelms the substitution effect. Therefore, the ordinary demand curve for good x is upward sloping, over the relevant range.
d. Good x is Giffen good.
e. Both answers (c) and (d) are correct.
14. Monopolistic competition is characterized by which of the following attributes?
(i) many sellers
(ii) product Differentiation
(iii) barriers to entry
a (i) and (iii) only.
b (i) and (ii) only.
c (ii) and (iii) only.
c (i) only.
e (i) (ii) and (iii).
15. A profit maximizing firm's short-run shut down criterion is
a. Average Revenue > Marginal Cost.
b. Price < Average Variable Cost.
c. Price < Average Total Cost.
d. Average Revenue > Average Fixed Cost.
e. Average Revenue > Average Variable Cost.
Use the following diagram to answer questions 16-17.
16.
After the imposition of a per-unit tax in the above market, the area representing consumer surplus is _____.
a. A
b. A + B
c. A + B + C + D
d. D
e. There is no consumer surplus.
17. After the imposition of a per-unit tax in the above market, the area representing deadweight loss is _____.
a. A
b. A + B
c. A + B + C + D
d. C
e. There is no deadweight loss.
Use the following table to answer questions 18 through 22.
0 / 0 / ---- / ---- / ---- / ----
1 / 100 / $1000 / $500 / $500
2 / 80 / $800 / $500
3 / 60 / $500 / $100
4 / 280 / $400 / $500
5 / 20 / $500
18. What is the market price of the final good?
a. $5.
b. $10.
c. $15.
d. $20.
e. $25.
19. If the firm hires two workers, the two workers together produce
a. 80 units.
b. 90 units.
c. 100 units.
d. 120 units.
e. 180 units.
20. What is the marginal product of the fourth worker?
a. 40.
b. 80.
c. 100.
d. 180.
e. 280.
21. When the third worker is hired, what is the change in profit?
a. $600.
b. $400.
c. $300.
d. $100.
e. $0.
22. A profit-maximizing firm will hire workers as long as the value of the marginal product of labor equals or exceeds
a. $500.
b. $400.
c. $300.
d. $200.
e. $100.
The figure below depicts the demand, marginal revenue and marginal cost curves of a profit-maximizing monopolist. Use the figure to answer questions 23-26
23. If the monopoly firm perfectly discriminates, what will the consumer surplus be?
a. A + B.
b. A + B + E + F + G.
c. G.
d. A + E.
e. Consumer surplus will equal to zero.
24. What is the deadweight loss equal to when the monopolists does NOT price discriminate?
a. A + B.
b. A + B + E + F + G.
c. G.
d. A + E.
e. Deadweight loss will equal to zero.
25. Monopoly profit without price discrimination equals
a. A + B.
b. E + F.
c. A + B + E + F.
d. A + B + E + F + G.
e. A + B + E + F + G + H + I + K.
26. In a two-person repeated game, a tit-for-tat strategy starts with
a. noncooperation and then each player pursues his or her own self-interest.
b. cooperation and then each player is unresponsive to the strategic moves of the other player.
c. noncooperation and then each player cooperates when the other player demonstrates a desire for the cooperative solution.
d. noncooperation and then each player mimics the other player's last move.
e. cooperation and then each player mimics the other player's last move.
Questions 27-28 refer to the following diagrams of budget lines
27. Which of the graphs shown reflects a decrease in the price of good X only?
a. panel A
b. panel B
c. panel C
d. panel D
e. panel B & D
28. Which of the graphs shown reflects an increase in the price of good Y?
a. panel A
b. panel B
c. panel C
d. panel D
e. None of above
29. An externality exists when
a. the government intercedes in the operation of private markets by forcing the market to adjust to the balance of supply and demand.
b. markets are not able to reach equilibrium.
c. a firm sells its product in a foreign market.
d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.
e. All of above are correct.
Questions 30-31 refer to the following diagram.
30. If the consumer is currently at point A on the graph shown, a change to point B as a result of a decrease in the price of potato chips would show the
a. price effect.
b. budget effect.
c. substitution effect.
d. income effect.
e. substitution effect + income effect.
31. If the consumer is currently at point B on the graph shown, a change to point C as a result of a decrease in the price of potato chips would show the
a. price effect.
b. budget effect.
c. substitution effect.
d. income effect.
e. substitution effect + income effect
32. The Federal Government attempts to resolve negative externalities caused by automobile exhaust by
(i) taxing gasoline to reduce the amount that people drive.
(ii) building safer highways.
(iii) setting emission standards for automobiles.
a. (i), (ii) and (iii) are all used to reduce emissions.
b. Only (i) and (iii) are used to reduce emissions.
c. Only (ii) and (iii) are used to reduce emissions.
d. Only (i) is used to reduce emissions.
e. Only (i) and (ii) are used to reduce emissions.
The figure below depicts average total cost functions for a firm that produces automobiles. Use the figure to answer questions 33.
33. Assuming the firm is currently operating on ATCB, what options does it have if it wants to change its level of automobile production over the next couple of weeks?
a. It can operate at any level of output as long as it stays on ATCB.
b. It can operate at any level of output between points M and N.
c. It can operate at any level of output, as long as it stays on ATCD.
d. It can operate at any level of output, as long as it stays on ATCA.
e. The firm has no options. It cannot change output level in the short run.
34. A good is excludable if
a. one person's use of the good diminishes another person's enjoyment of it.
b. the government regulates its availability.
c. it is a normal good.
d. it is not a normal good.
e. people can be prevented from using it.
35. When one person uses a common resource, he/she diminishes other people’s enjoyment of it. This is an example of
a. a market force.
b. a negative externality.
c. the “invisible hand.”
d. free-rider.
e. excludability.
Questions 36-38 refer to the following diagrams
36. In the figure shown, the free-trade price and quantity demanded would be
a. P1, Q1.
b. P1, Q4.
c. P2, Q2.
d. P1, Q2.
e. P2, Q3.
37. In the figure shown, the domestic price and quantity demanded after the tariff would be
a. P1, Q1.
b. P1, Q4.
c. P2, Q2.
d. P1, Q2.
e. P2, Q3.
38. In the figure shown, consumer surplus with free trade would be
a. A.
b. A + B.
c. A + C
d. A + C + G.
e. A + B + C + D + E + F.
39. In the long run all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is
a. Average Revenue > Marginal Cost.
b. Average Revenue < Marginal Cost