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EC201 Final Exam

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Sample 2007 Final Exam for EC201 Fall Semester 2014 with Professor Ballard
Zachariah Mann
Quiz by Zachariah Mann, updated more than 1 year ago
Zachariah Mann
Created by Zachariah Mann almost 10 years ago
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Resource summary

Question 1

Question
Which of the following statements is associated with normative analysis, rather than positive analysis?
Answer
  • A tariff will lead to an increase in the price paid by consumers in the importing country.
  • The elasticities of supply and demand in the tobacco market are such that consumers of tobacco products will bear most of the economic burden of tobacco taxes.
  • When a rent control is set below the equilibrium level of apartment rents, there will be a shortage in the rental housing market.
  • A cold winter will lead to increases in the price of home heating oil.
  • The tax system should be progressive.

Question 2

Question
Alan’s opportunity cost of producing good A is lower than Bob’s opportunity cost of producing good A. Bob’s opportunity cost of producing good B is lower than Alan’s opportunity cost of producing good B. This means that
Answer
  • Alan has comparative advantage in the production of good A.
  • Alan should specialize in the production of good A.
  • Alan should specialize in the production of good B.
  • Neither Alan nor Bob should specialize—each should produce both goods.
  • Alan has comparative advantage in the production of good A AND Alan should specialize in the production of good A.

Question 3

Question
Which of the following is an example of a condition for an optimal decision by some kind of economic agent?
Answer
  • For the consumer: Marginal utility is equal to price.
  • For the producer: Price is equal to average variable cost.
  • For the firm that is hiring workers: Marginal revenue product is equal to average revenue product.
  • All of the above.
  • (a) and (b) only.

Question 4

Question
Which of the following would push the production-possibilities frontier outward?
Answer
  • Technological improvements.
  • Increases in the size of the labor force.
  • Capital investments.
  • All of the above.
  • (a) and (b) only.

Question 5

Question
Which of the following is necessary for a firm to increase its profits by engaging in price discrimination?
Answer
  • The firm must be a perfect competitor.
  • The firm must face a demand curve that is unit elastic.
  • The firm must have some way of distinguishing among its customers, to tell which ones have demand that is more elastic and which ones have demand that is less elastic.
  • All of the above.
  • None of the above.

Question 6

Question
The supply curve for tarfsnods is perfectly inelastic. The demand curve shifts to the right. What will happen as a result?
Answer
  • Equilibrium price will rise; equilibrium quantity will rise.
  • Equilibrium price will rise; equilibrium quantity will stay the same.
  • Equilibrium price will stay the same; equilibrium quantity will rise.
  • Equilibrium price will fall; equilibrium quantity will stay the same.
  • Equilibrium price and quantity will both stay the same.

Question 7

Question
The income elasticity of demand for commodity J is 0.6. On the basis of this information, we would say that J is
Answer
  • elastic
  • inelastic
  • inferior
  • normal
  • (b) and (d)

Question 8

Question
Which of the following would be expected to shift the supply curve for tomatoes to the left?
Answer
  • An increase in the prices of inputs used in production of tomatoes.
  • An increase in the price of tomatoes.
  • Flooding in tomato-growing regions, which leads to crop damage.
  • All of the above.
  • An increase in the prices of inputs used in production of tomatoes and Flooding in tomato-growing regions, which leads to crop damage.

Question 9

Question
Which of the following is an example of the “Tragedy of the Commons”?
Answer
  • A lot of hot air comes out of the House of Commons in London.
  • A monopoly will produce less than the socially optimal quantity.
  • When there is free access to a fishing ground, the stock of fish will be depleted.
  • In a monopsony labor market, workers will be paid less than their marginal revenue product.
  • A tax on an elastically demanded good will generate a large excess burden.

Question 10

Question
The elasticity of demand for thingamabobs is 1.0. The quantity demanded goes up from 30 per day to 50 per day. Assume that a change in price was the only reason for the change in quantity demanded. What must have happened to the price, in order to have caused quantity demanded to change in this way?
Answer
  • Price was unchanged.
  • Price went down by 25%.
  • Price went down by 40%.
  • Price went down by 50%.
  • Price went down by 100%.

Question 11

Question
The payroll tax is a flat rate of labor earnings, but only up to a ceiling, above which the rate drops substantially. Also, the payroll tax does not apply to capital income. As a result, the payroll tax is
Answer
  • progressive at all income ranges.
  • regressive at all income ranges.
  • about proportional over much of the income range, but regressive at high incomes.
  • progressive over much of the income range, but about proportional at high incomes.
  • about proportional over much of the income range, but progressive at high incomes.

Question 12

Question
The firms in a monopolistically competitive industry are earning positive economic profits. What would we expect to happen as a result?
Answer
  • New firms will enter the industry until zero economic profits are being earned.
  • The firms will continue to earn positive economic profits indefinitely, because of barriers to entry.
  • New firms will enter the industry until negative economic profits are being earned.
  • Firms will exit the industry until zero economic profits are being earned.
  • None of the above.

Question 13

Question
Because of good growing conditions, there is an increase in the supply of asparagus. What will happen to the equilibrium price and quantity of asparagus?
Answer
  • Equilibrium price will rise; equilibrium quantity will rise.
  • Equilibrium price will rise; equilibrium quantity will fall.
  • Equilibrium price will fall; equilibrium quantity will rise.
  • Equilibrium price will fall; equilibrium quantity will fall.
  • Not enough information has been given to answer the question.

Question 14

Question
Which of the following is/are a reason why the earnings of college-educated workers tend to be higher than the earnings of workers with less than a college education?
Answer
  • College-educated workers have higher marginal revenue product, so that the demand curve for their services is farther to the right than it would otherwise be.
  • A college education is costly to acquire, so that the supply curve of college-educated workers is farther to the left than it would otherwise be.
  • College-educated workers experience compensating wage-rate differentials, so that the demand curve for college-educated workers is farther to the right than it would otherwise be.
  • All of the above.
  • (a) and (b) only.

Question 15

Question
When the price of champagne goes up, the demand curve for zabaglione shifts to the left. This means that
Answer
  • champagne and zabaglione are substitutes.
  • champagne and zabaglione are complements.
  • the cross-price elasticity of demand for zabaglione with respect to the price of champagne is positive.
  • (a) and (c) are both correct.
  • None of the above is true.

Question 16

Question
An import quota is instituted. As a result, consumers in the importing country are harmed, because they consume a smaller quantity, and they pay a higher price for the units they do consume. What is our best measure of the dollar value of the harm done to consumers by the import quota?
Answer
  • The change in total expenditure.
  • The change in quantity.
  • The change in consumer surplus.
  • The change in price.
  • In order to answer the question, we would need information about the own-price elasticity of demand.

Question 17

Question
Which of the following is a graph of the relationship between the cumulative proportion of the population and the cumulative proportion of income?
Answer
  • A Pigou curve
  • A Lorenz curve
  • A Gini curve
  • A Smith curve
  • A Keynes curve

Question 18

Question
Investment projects tend to have a large portion of their costs early in the life of the project, with the revenues coming later. Because of this, and because of the need to discount future costs and revenues, we would be more likely to approve a project if
Answer
  • the interest rate is higher.
  • the interest rate is lower.
  • the project can be completed quickly, so the revenues can begin to be realized sooner rather than later.
  • none of the above.
  • (b) and (c).

Question 19

Question
The Gini coefficient for annual income is than the Gini coefficient for wealth, and the Gini coefficient for annual income is the Gini coefficient for lifetime income.
Answer
  • larger than, larger than.
  • smaller than, larger than.
  • larger than, smaller than.
  • smaller than, smaller than.
  • about the same as, identical to.

Question 20

Question
If a natural monopoly were to charge a price equal to marginal cost,
Answer
  • the firm would earn positive economic profits.
  • the firm would suffer economic losses.
  • the firm would earn zero economic profits.
  • the firm’s marginal cost would be greater than its average total cost.
  • the firm would turn into a giant banana slug.

Question 21

Question
The price of a cotton handkerchief increases from $1.80 to $2.20. As a result, the quantity demanded decreases from 1100 per day to 900 per day. What is the own-price elasticity of demand?
Answer
  • 0.0
  • 0.5
  • 1.0
  • 2.0
  • 10.0

Question 22

Question
In the Empire of Lumpiness, every person pays $1000 per year of tax, regardless of his or her income. This tax system is
Answer
  • regressive.
  • proportional.
  • progressive.
  • perfectly elastic.
  • only comprehensible to Ginny Weasley.

Question 23

Question
Which of the following is believed to be the most important force leading to the recent trend in income inequality in the United States?
Answer
  • The strong performance of the New England Patriots.
  • The increase in transfer payments to poor people.
  • The increase in the real value of the minimum wage.
  • Increases in the demand for skilled workers.
  • Increases in the rate of return on capital investments.

Question 24

Question
The supply curve for good X is given by Qs = P. The demand curve is given by Qd = 20 - 3P. What is the equilibrium price of good X?
Answer
  • 2
  • 4
  • 5
  • 10
  • 20

Question 25

Question
What will be the effect of a price ceiling that is enforced above the equilibrium price?
Answer
  • A surplus will occur.
  • A shortage will occur.
  • There will be no effect.
  • There will be shortages on alternate Tuesdays, and surpluses on Sunday mornings between the hours of 2 and 5.
  • All of the above.

Question 26

Question
In an attempt to raise its revenues, Emily’s Bar & Grill increases the price of its onion soup. What does this imply about Emily’s beliefs regarding the elasticity of demand for its onion soup?
Answer
  • Demand is inelastic.
  • Demand is unit elastic.
  • Demand is elastic.
  • All of the above.
  • None of the above.

Question 27

Question
Hezekiah is considering taking out a loan to make a new capital investment. The cost is $100. Exactly one year later, the project will generate revenue of $105, and the project will then self-destruct. The interest rate is 10%. Which of the following is true?
Answer
  • The project has positive net present discounted value (PDV); Hezekiah should do it.
  • The project has zero net PDV; Hezekiah should do it.
  • The project has negative net PDV; Hezekiah should not do it.
  • The project has positive net PDV; Hezekiah should not do it.
  • The project has negative net PDV; Hezekiah should do it.

Question 28

Question
Assume that the elasticity of labor supply is smaller than the elasticity of labor demand. A payroll tax is levied at exactly the same rate on employers and workers. Who will bear the economic burden of the tax?
Answer
  • Employers will bear most of the burden.
  • Workers will bear most of the burden.
  • The tax will be borne equally by employers and workers.
  • Not enough information has been given.
  • All of the above! Astonishingly, the tax will be borne mostly by employers, and it will be borne mostly by workers, and it will be evenly split between employers and workers, and we can't tell, all at the same time!

Question 29

Question
If there is a positive externality, a competitive private market will produce _____ the socially optimal quantity. If there is a negative externality, a competitive private market will produce _______ the socially optimal quantity.
Answer
  • more than, more than.
  • more than, less than.
  • less than, more than.
  • less than, less than.
  • exactly, exactly.

Question 30

Question
If the equilibrium interest rate is 10% and a usury ceiling is enforced at 5%,
Answer
  • a shortage of credit will occur.
  • a surplus will occur in the credit market.
  • the quantity of credit demanded will be larger than it would have been at the equilibrium.
  • there will be no effect.
  • (a) and (c).

Question 31

Question
Which of the following policy issues would be classified as having to do with macroeconomics, rather than microeconomics?
Answer
  • The effect of tariffs on the volume of exports.
  • The effect of a minimum-wage law on the employment of low-skill workers.
  • The effect of the Federal Reserve’s monetary policy on the rate of inflation.
  • The effect of education on earnings.
  • The effect of a drought on the price of corn.

Question 32

Question
Which of the following is graphed as a horizontal line?
Answer
  • A perfectly inelastic demand curve.
  • An average-fixed-cost curve.
  • An average-total-cost curve for a natural monopoly.
  • A marginal-revenue curve for a monopoly.
  • A total-fixed-cost curve.

Question 33

Question
For any firm for which price is greater than average variable cost, the profit-maximizing quantity of output will be the precise quantity at which
Answer
  • marginal revenue equals marginal cost.
  • demand is inelastic.
  • price equals marginal cost.
  • marginal revenue is negative.
  • (a) and (b) are true.

Question 34

Question
A point that is below and to the left of the production-possibilities frontier is
Answer
  • associated with inefficient use of the available resources.
  • associated with efficient use of the available resources.
  • unattainable with the resources that are currently available.
  • All of the above.
  • None of the above.

Question 35

Question
Huge Corporation is a monopolist. Its marginal costs decrease (i.e., its entire marginal-cost curve shifts downward). How will the firm change its price and quantity as a result?
Answer
  • Huge will increase price and leave quantity of output unchanged.
  • Huge will increase price and increase quantity of output.
  • Huge will increase price and reduce quantity of output.
  • Huge will reduce price and increase quantity of output.
  • Huge will reduce price and decrease quantity of output.

Question 36

Question
In which of the following antitrust cases was a firm broken into more than one smaller firm?
Answer
  • Standard Oil
  • American Tobacco
  • ALCOA
  • All of the above
  • (a) and (b) only.

Question 37

Question
What is the marginal cost of the second unit (i.e., the marginal cost of going from Q=1 to Q=2)?
Image:
EC201Exam.PNG (image/PNG)
Answer
  • $1
  • $2
  • $3
  • $4
  • $5

Question 38

Question
What is the average total cost when Q=4?
Image:
EC201Exam.PNG (image/PNG)
Answer
  • $1
  • $2
  • $3
  • $4
  • $5

Question 39

Question
What type of firm could this be?
Answer
  • A perfectly competitive firm.
  • A monopoly firm.
  • A monopolistically competitive firm.
  • Any of the above.
  • (b) or (c).

Question 40

Question
What is the firm's profit-maximizing quantity of output?
Answer
  • 0
  • 1
  • 2
  • 3
  • 4

Question 41

Question
Which of the following is/are consistent with the Law of Demand?
Answer
  • The price of A goes up. As a result, and the quantity demanded of A goes down.
  • A and B are complements. The price of A goes up. As a result, there is a decrease in the demand for B.
  • A and B are substitutes. The price of A goes up. As a result, there is an increase in the demand for B.
  • All of the above.
  • (a) and (b) only.

Question 42

Question
Two markets have exactly the same net-of-tax supply curve. They also have exactly the same equilibrium price and quantity when there is no tax. Then each of the markets is subjected to exactly the same tax. The only difference between the two markets is that the demand for good X is more elastic than the demand for good Y. On the basis of this information, what can we say?
Answer
  • The tax in market Y will generate more revenue.
  • The tax in market Y will generate more excess burden.
  • Both (a) and (b) are true.
  • Neither (a) nor (b) is true.
  • Lord Voldemort is the only one who knows the answer to this question, and we’re too afraid to ask him.

Question 43

Question
The benefit to the firm from hiring an extra unit of an input is called the marginal revenue product. Marginal revenue product is equal to
Answer
  • price divided by marginal product.
  • average product multiplied by marginal revenue.
  • marginal product multiplied by price.
  • marginal product multiplied by average revenue.
  • marginal product multiplied by marginal revenue.

Question 44

Question
Assume that the demand for low-skill labor is inelastic. The minimum-wage law succeeds in pushing the wage rate above its equilibrium level for a group of low-skill workers. As a result, what will occur?
Answer
  • The number of these workers who are hired will decrease.
  • There will be a labor shortage.
  • The total payments to the affected group of workers will increase.
  • The workers will go to the gym more often, and lift weights.
  • (a) and (c).

Question 45

Question
The evidence suggests that the elasticity of men's labor supply with respect to the net wage rate is _________, while the elasticity of women's labor supply with respect to the net wage rate is ______.
Answer
  • 1.56, 3.12
  • positive, negative
  • strongly negative, positive
  • close to zero, positive
  • positive, close to zero

Question 46

Question
The deadweight loss from monopoly is represented graphically by the area of ____, and the excess burden of a tax is represented graphically by the area of _____.
Answer
  • a rectangle, a rectangle
  • a trapezoid, a triangle
  • a triangle, a rectangle
  • a rectangle, a trapezoid
  • a triangle, a triangle

Question 47

Question
All else equal, an increase in the demand for highly skilled labor will lead to _______ in the distribution of labor-market earnings, and an increase in the supply of highly skilled labor will lead to __________ in the distribution of labor-market earnings.
Answer
  • greater inequality, greater inequality
  • greater inequality, less inequality
  • less inequality, greater inequality
  • less inequality, less inequality
  • not enough information has been given to answer the question

Question 48

Question
In Miftez, there is no international trade, and the price of good R is $10 per kilogram. In the rest of the world, the price of good R is $20 per kilogram. This suggests that
Answer
  • Miftez would benefit by importing good R from other countries, without any tariffs, quotas, or other interferences.
  • Miftez would benefit by importing good R, but only if a tariff is levied on imports of good R.
  • Miftez would benefit by exporting good R to other countries
  • Miftez would not benefit by either importing or exporting good R.
  • Not enough information has been given to answer the question.

Question 49

Question
Which of the following statements is/are true, regarding the effect on labor supply, caused by an increase in the wage rate?
Answer
  • When the wage rate increases, the opportunity cost of leisure increases.
  • The increase in the wage rate will create a substitution effect, such that the individual will work less.
  • The increase in the wage rate will create an income effect, such that the individual will work more.
  • All of the above.
  • (b) and (c) only are true.

Question 50

Question
The market supply curve for beef jerky shifts to the right. At the same time, the market demand curve for beef jerky shifts to the left. As a result of these two changes, what will happen to the equilibrium price and quantity of beef jerky?
Answer
  • Price will rise; quantity will rise.
  • Price will rise; the effect on quantity can’t be determined without more information.
  • Price will fall; the effect on quantity can’t be determined without more information.
  • Quantity will rise; the effect on price can’t be determined without more information.
  • Quantity will fall; the effect on price can’t be determined without more information.

Question 51

Question
In your textbook, the Prisoners’ Dilemma is used to study
Answer
  • the deadweight loss of a sales tax.
  • monopsonistic exploitation of labor.
  • the effects of price ceilings.
  • how to saw through thick iron bars.
  • the interaction between firms in a duopoly.

Question 52

Question
Rubeus Hagrid has received a promise that he will be paid $1000, exactly five years from now. There is no uncertainty: he is absolutely certain that he will receive the $1000. The interest rate is 10%. What is the present discounted value of the payment?
Answer
  • $1000
  • $1000 / 1.1
  • $1000 / 1.5
  • $1000 / 5
  • $1000 / (1.1)^5

Question 53

Question
Consumer surplus is
Answer
  • the difference between the amount consumers are willing to pay and the amount they actually have to pay.
  • graphically represented by the area under the demand curve but above the supply curve.
  • something that occurs when a price floor is enforced above the equilibrium price.
  • All of the above.
  • (a) and (b) only.

Question 54

Question
Inequality between countries is
Answer
  • greater than the inequality within countries (that is, the Gini index for the world as a whole is larger than the Gini indexes for individual countries).
  • about the same as the inequality within countries (that is, the Gini index for the world as a whole is about the same as the Gini indexes for individual countries).
  • smaller than the inequality within countries (that is, the Gini index for the world as a whole is less than the Gini index for individual countries).
  • all of the above.
  • none of the above

Question 55

Question
The short-run supply curve for a perfectly competitive firm is
Answer
  • the marginal-revenue curve.
  • the average-fixed-cost curve.
  • the marginal-cost curve for prices equal to or greater than average total cost. If price is less than average total cost, the quantity supplied is zero.
  • the marginal-cost curve for prices equal to or greater than average variable cost. If price is less than average variable cost, the quantity supplied is zero.
  • none of the above. The perfectly competitive firm does not have a unique, well-defined supply curve.

Question 56

Question
Which of the following will occur as a result of a tariff?
Answer
  • The gross price paid by buyers in the importing country will increase.
  • The net price received by sellers in the exporting country will decrease.
  • The quantity of imports will be reduced.
  • All of the above.
  • (a) and (c) only.

Question 57

Question
The Lorenz Curve in country A is closer to the horizontal axis than the Lorenz Curve for country B. In other words, the Lorenz Curve for country A is always below the Lorenz Curve for country B. This means that
Answer
  • the Gini Ratio for country A is greater than the Gini Ratio for country B.
  • the Gini Ratio for country A is less than the Gini Ratio for country B.
  • the distribution of income is more equal in country A than in country B
  • (a) and (c).
  • none of the above.

Question 58

Question
Which of the following is a characteristic of a pure public good?
Answer
  • Nonrival consumption, i.e., many people can enjoy the good at the same time.
  • Nonexcludability, i.e., it is difficult or impossible to exclude those who don’t pay.
  • Inelastic demand.
  • All of the above.
  • (a) and (b) only.

Question 59

Question
Which of the following is widely considered to be a violation of horizontal equity?
Answer
  • The federal individual income tax is not neutral with respect to marital status, i.e., single persons sometimes experience a marriage penalty or marriage bonus.
  • The federal individual income tax has graduated marginal rates.
  • The federal individual income tax is associated with excess burden.
  • Sales taxes are regressive.
  • Telephone poles are vertical, not horizontal.

Question 60

Question
Tariffs, quotas, and VERs are all used to restrict imports. Which of the following statements is true regarding these policies that interfere with international trade?
Answer
  • All three are explicit restrictions on the quantity of imports.
  • A tariff is a price mechanism, whereas a quota or a VER is an explicit restriction on the quantity of imports.
  • All three are price mechanisms.
  • A tariff or a VER is a price mechanism, whereas a quota is an explicit restriction on the quantity of imports.
  • A VER raises revenue for the government of the importing country

Question 61

Question
In one day, Abner can fix 6 bicycles, or he can sharpen 6 axes. In one day, Zebediah can fix 12 bicycles, or he can sharpen 8 axes. Between these endpoints, each person has a straight-line production possibilities frontier. Which of the following statements is true?
Answer
  • The earth is flat.
  • Zebediah has comparative advantage in both activities.
  • Abner has comparative advantage in fixing bicycles.
  • Neither person has comparative advantage in either activity.
  • Zebediah has absolute advantage in both activities.

Question 62

Question
There is an increase in the demand for billiard balls (i.e., the demand curve for billiard balls shifts to the right). As a result,
Answer
  • the equilibrium price will increase; the equilibrium quantity will increase.
  • the equilibrium price will increase; the equilibrium quantity will decrease.
  • the equilibrium price will decrease; the equilibrium quantity will increase.
  • the equilibrium price will decrease; the equilibrium quantity will decrease.
  • nothing will happen.

Question 63

Question
Job A and Job B are identical in every way except one. The only difference between the two jobs is that the working conditions of Job A are pleasant, whereas the working conditions of Job B are unpleasant. As a result, the equilibrium wage rate for Job B will be higher than the equilibrium wage rate for Job A. Why does the wage difference occur?
Answer
  • The demand curve for A labor is to the right of the demand curve for B labor.
  • The demand curve for A labor is to the left of the demand curve for B labor.
  • The supply curve for A labor is to the right of the supply curve for B labor.
  • The supply curve for A labor is to the left of the supply curve for B labor.
  • A union has succeeded in pushing the B wage rate above its equilibrium level.

Question 64

Question
Which of the following is restricted by the antitrust laws?
Answer
  • Tariffs
  • Price Fixing
  • Import quotas
  • Environmental externalities
  • All of the above.

Question 65

Question
The income tax in Koblenzia has an exemption, such that those with low incomes pay no tax. It also has graduated marginal rates. For a taxpayer whose income is greater than the exemption level,
Answer
  • the average tax rate is greater than the marginal tax rate.
  • the marginal tax rate is greater than the average tax rate.
  • the marginal tax rate is equal to the average tax rate.
  • not enough information has been given to answer the question.
  • it’s time for a nap.

Question 66

Question
A price ceiling is imposed in the market for licorice. The price ceiling is below the equilibrium price, and this leads to shortages. We say that a shortage is larger if the difference between quantity demanded and quantity supplied is larger. All else equal, which of the following statements is/are true, regarding the relationship between the size of the shortage and the own-price elasticity of demand?
Answer
  • The shortage will be larger if the elasticity is larger.
  • The shortage will be larger if the elasticity is smaller.
  • The elasticity will have no effect on the size of the shortage.
  • If the elasticity is larger, the shortage will be larger on days of the week that begin with the letters T, W, or F, but smaller on days that begin with M or S.
  • Not enough information has been given to answer the question.

Question 67

Question
If an individual receives non-labor income, he/she will work less. This means that
Answer
  • leisure is a normal good.
  • the labor-supply curve is perfectly inelastic.
  • a minimum-wage law will increase the total payments to low-wage workers.
  • the union threat effect is very small.
  • no one knows anything about anything.

Question 68

Question
The payroll tax in the United States is a flat-rate tax on earnings in the labor market, up to a ceiling. Most Americans receive most of their income from labor-market earnings, and the ceiling is much higher than the average wage earner makes in a year. Thus the payroll tax is approximately proportional over most of the income range. However, above a certain amount (which was $106,800 in 2011), the marginal rate of payroll tax decreases dramatically. As a result, what can we say about the payroll tax for those who earn more than the ceiling?
Answer
  • It is progressive.
  • It is proportional
  • It is regressive
  • All of the above are correct!! The tax is progressive, and proportional, and regressive, all at the same time!!
  • Not enough information has been given to answer the question.

Question 69

Question
In the Republic of Fenwickia, every household has exactly the same income. The Gini Ratio for this country is
Answer
  • 0
  • 1
  • 3.14159
  • 100
  • e. Not enough information has been given to answer the question.

Question 70

Question
A demand curve is
Answer
  • a graph of the relationship between quantity demanded and price, holding constant all other possible influences on buyers.
  • Downward sloping as we move from left to right, if it obeys the Law of Demand.
  • A graph of the information contained in a demand schedule.
  • All of the above.
  • None of the above.

Question 71

Question
Which of the following is a normative statement?
Answer
  • When the demand curve shifts to the right, the equilibrium price rises and the equilibrium quantity also rises.
  • A monopoly will produce a lower quantity than an otherwise-comparable industry that is perfectly competitive.
  • The United States should increase the degree of progressivity of its tax system.
  • A price ceiling that is below the equilibrium price will lead to shortages.
  • All of the above.

Question 72

Question
There is an increase in the equilibrium price of gasoline, and an increase in the equilibrium quantity of gasoline. Which of the following would be consistent with these changes?
Answer
  • A rightward shift in the supply curve of gasoline.
  • A leftward shift in the supply curve of gasoline.
  • A rightward shift in the demand curve for gasoline.
  • A leftward shift in the demand curve for gasoline.
  • None of the above.

Question 73

Question
Which of these is the best definition of economics?
Answer
  • The study of shopping.
  • The study of how society chooses to use its scarce resources to produce, consume, and exchange goods and services.
  • The study of how to make money in the stock market.
  • The study of inflation and unemployment.
  • The study of hot dogs and mustard.

Question 74

Question
In the Duchy of Gutereise, the economy is on its production-possibilities frontier in 2011. Then, by one year later (in 2012), the economy produces more of every good than it had produced in 2011. How could this occur?
Answer
  • By reducing waste, so that the available resources are used more efficiently.
  • By moving downward and to the right along the existing production-possibilities frontier.
  • By moving upward and to the left along the existing production-possibilities frontier
  • By adopting new technologies and increasing the size of the labor force.
  • All of the above.

Question 75

Question
For the exact same flight, American Airlines charges lower prices for passengers who stay over a Saturday night, and higher prices for passengers who do not stay over a Saturday night. This is an example of
Answer
  • price discrimination.
  • monopsonistic exploitation.
  • collusive oligopoly.
  • rent seeking.
  • none of the above.

Question 76

Question
Assume that the elasticity of labor supply is smaller than the elasticity of labor demand. A payroll tax is levied on employers. Who will bear the largest share of the burden of the tax?
Answer
  • Employers.
  • Workers.
  • The tax will be borne equally by employers and workers.
  • Not enough information has been given.
  • All of the above! Astonishingly, the tax will be borne mostly by employers, and borne mostly by workers, and evenly split between employers and workers, and we can’t tell!

Question 77

Question
What kind of curve could this be?
Image:
Whatkindofcurve.PNG (image/PNG)
Answer
  • An average-fixed-cost curve.
  • A perfectly elastic demand curve.
  • A perfectly inelastic demand curve
  • A marginal-revenue-product curve.
  • A total-fixed-cost curve.

Question 78

Question
Assume that the elasticity of demand for green and white ball-point pens is 1.2. Due to a rightward shift in the supply curve for pompons, the price decreases by 50%. What will happen to the quantity of pompoms demanded?
Answer
  • Quantity demanded will increase by 6%.
  • Quantity demanded will increase by 12%.
  • Quantity demanded will increase by 24%.
  • Quantity demanded will increase by 50%.
  • Quantity demanded will increase by 60%.

Question 79

Question
Consumer surplus is
Answer
  • the difference between the amount consumers are willing to pay and the amount they actually have to pay.
  • graphically represented by the area under the demand curve but above the price line.
  • used in calculating the deadweight loss of monopoly.
  • All of the above.
  • (a) and (b) only.

Question 80

Question
Malfoy Corporation is a monopolist. Its marginal costs decrease (i.e., its entire marginal-cost curve shifts downward). How will the firm change its price and quantity as a result?
Answer
  • Malfoy will reduce price and increase quantity of output.
  • Malfoy will reduce price and decrease quantity of output.
  • Malfoy will increase price and leave quantity of output unchanged.
  • Malfoy will increase price and increase quantity of output.
  • Malfoy will increase price and reduce quantity of output.

Question 81

Question
If the social marginal cost of production of good Z is greater than the private marginal cost, we would say that good Z is characterized by
Answer
  • decreasing returns to scale.
  • leprosy, malocclusion, and poor gas mileage.
  • a negative externality.
  • opportunity cost.
  • positive economic profit.

Question 82

Question
If a Pigouvian tax is designed in the socially optimal way, it will
Answer
  • lead to equality between social marginal costs and private marginal costs.
  • solve the problem caused by an externality.
  • eliminate pollution.
  • All of the above.
  • (a) and (b) only.

Question 83

Question
For Hezekiah, total utility and marginal utility can be measured in dollars of willingness to pay. Hezekiah’s total-utility schedule for trips to the movie theater is given by: Quantity Total Utility Marginal Utility 0 $0 -- 1 8 2 15 3 21 4 26 5 30 The current market price of a movie ticket is $5. How many movie tickets will Hezekiah buy?
Answer
  • 1
  • 2
  • 3
  • 4
  • 5

Question 84

Question
The firms in a monopolistically competitive industry are earning positive economic profits. What would we expect to happen as a result?
Answer
  • New firms will enter the industry until zero economic profits are being earned.
  • The firms will continue to earn positive economic profits indefinitely, because of barriers to entry.
  • New firms will enter the industry until negative economic profits are being earned.
  • Firms will exit the industry until zero economic profits are being earned.
  • None of the above.

Question 85

Question
Because of an improvement in agricultural technology, there is an increase in the supply of peaches. In other words, there is a rightward shift in the supply curve for peaches. What will happen to the equilibrium price and quantity of peaches?
Answer
  • Equilibrium price will rise, equilibrium quantity will rise.
  • Equilibrium price will rise, equilibrium quantity will fall.
  • Equilibrium price will fall, equilibrium quantity will rise.
  • Equilibrium price will fall, equilibrium quantity will fall.
  • Not enough information has been given to answer the question.

Question 86

Question
What kind of firm could this be?
Image:
EC201Exam2.PNG (image/PNG)
Answer
  • A monopoly.
  • A monopolistically competitive firm
  • An oligopoly firm.
  • Any of the above.
  • Not enough information has been given to answer the question.

Question 87

Question
What is average total cost when Q=4?
Image:
EC201Exam2.PNG (image/PNG)
Answer
  • 1
  • 2
  • 3
  • 4
  • 5

Question 88

Question
What is the marginal revenue of the fifth unit (i.e., the marginal revenue associated with going from Q=4 to Q=5)?
Image:
EC201Exam2.PNG (image/PNG)
Answer
  • 5
  • 4
  • 3
  • 2
  • 1

Question 89

Question
What is the firm's profit-maximizing quantity of output?
Image:
EC201Exam2.PNG (image/PNG)
Answer
  • 1
  • 2
  • 3
  • 4
  • 5

Question 90

Question
Which of the following would be an example of the “Tragedy of the Commons”?
Answer
  • A lot of hot air comes out of the House of Commons in London.
  • A monopoly will produce less than the socially optimal quantity.
  • When there is free access to a fishing ground, the stock of fish will be depleted.
  • In a monopsony labor market, workers will be paid less than their marginal revenue product.
  • A tax on an elastically demanded good will generate a large excess burden.

Question 91

Question
Investment projects tend to have a large portion of their costs early in the life of the project, with the revenues coming later. Because of this, and because of the need to discount future costs and revenues, we would be more likely to approve a project if
Answer
  • the interest rate is higher.
  • the interest rate is lower.
  • the project can be completed quickly, so the revenues can begin to be realized.
  • none of the above.
  • (b) and (c).

Question 92

Question
Which of the following is true regarding nonrival consumption?
Answer
  • Nonrival consumption is one of the characteristics of a public good.
  • Nonrival consumption means that one person can enjoy the good without diminishing anyone else’s enjoyment of the good.
  • Nonrival consumption is the reason why we add individual willingness-to-pay curves vertically, in constructing the social willingness-to-pay curve.
  • All of the above are true.
  • Only (a) and (b) are true.

Question 93

Question
Different people have different wage rates, for a variety of reasons. One type of wage-rate differential is a compensating wage-rate differential. Why do we observe compensating wage differentials for some occupations?
Answer
  • The workers in those occupations have very high levels of education.
  • The workers in those occupations are members of unions.
  • The workers in those occupations are helped by affirmative-action laws.
  • The workers in those occupations have unusually large amounts of experience.
  • The work in those occupations is dangerous or unpleasant.

Question 94

Question
Which of the following could lead to higher prices for the consumers in the importing country?
Answer
  • A tariff.
  • An import quota.
  • A voluntary export restraint.
  • All of the above.
  • None of the above.

Question 95

Question
Which of the following is a reason why we might prefer Pigouvian remedies (such as emissions charges) to regulations, as a method of reducing pollution?
Answer
  • Pigouvian remedies take into account the differences among firms in the costs of pollution reduction.
  • Pigouvian remedies are more effective in breaking up cartels.
  • Pigouvian remedies raise revenue for the government, which can be used to reduce the reliance on other, more distortionary taxes.
  • All of the above.
  • (a) and (c) only.

Question 96

Question
The price of good A increases. As a result, there is a decrease in the demand for good B. This means that
Answer
  • good A and good B are substitutes.
  • good A and good B are complements.
  • the demand for good A and the demand for good B are both elastic.
  • good A and good B are both normal goods.
  • None of the above

Question 97

Question
The price of geegaws falls from $18 to $14. As a result, the quantity demanded rises from 300 to 500. What is the elasticity of demand?
Answer
  • 0.25
  • 0.5
  • 1.0
  • 2.0
  • 7.891234567890123456

Question 98

Question
A point that is below and to the left of the production-possibilities frontier is
Answer
  • associated with inefficient use of the available resources
  • associated with efficient use of the available resources.
  • unattainable with the resources that are currently available
  • All of the above.
  • None of the above.

Question 99

Question
When the price of champagne goes up, the demand curve for zabaglione shifts to the right. This means that
Answer
  • champagne and zabaglione are substitutes.
  • champagne and zabaglione are complements.
  • the cross-price elasticity of demand for zabaglione with respect to the price of champagne is positive.
  • (a) and (c) are both correct.
  • None of the above is true.

Question 100

Question
Two markets have exactly the same net-of-tax supply curve. They also have exactly the same equilibrium price and quantity when there is no tax. Then each of the markets is subjected to exactly the same tax. The only difference between the two markets is that the demand for good X is more elastic than the demand for good Y. On the basis of this information, what can we say?
Answer
  • The tax in market Y will generate more revenue.
  • The tax in market Y will generate more excess burden.
  • Both (a) and (b) are true.
  • Neither (a) nor (b) is true.
  • Louie the Icepick is the only one who knows the answer to this question, and we're too afraid to ask him.

Question 101

Question
If the net wage rate decreases, the income effect would move the individual toward ____ work, and the substitution effect would move the individual toward ______ work.
Answer
  • more, more
  • more, less
  • less, more
  • less, less
  • about the same amount of, about the same amount of

Question 102

Question
Which of the following is restricted by the antitrust laws?
Answer
  • Attempting to monopolize.
  • Price fixing.
  • Interlocking directorates.
  • Tie-in sales.
  • All of the above.

Question 103

Question
Which of the following would be expected to shift the supply curve for tomatoes to the right?
Answer
  • A decrease in the prices of inputs used in production of tomatoes.
  • An increase in the price of tomatoes.
  • Discovery of a new technology that makes it possible to produce more tomatoes without using more inputs.
  • All of the above.
  • (a) and (c) only.

Question 104

Question
The supply of rabmots is given by Qs = 3P. The demand for rabmots is given by Qd = 40 - P. What are the equilibrium price and quantity of rabmots?
Answer
  • P = $10, Q = 10
  • P = $16, Q = 24
  • P = $20, Q = 30.
  • P = $12, Q = 28.
  • P = $10, Q = 30.

Question 105

Question
In the Empire of Lumpiness, every person pays $1000 per year of tax, regardless of his or her income. This tax system is
Answer
  • regressive
  • proportional
  • progressive
  • perfectly elastic
  • only comprehensible to people with a Ph.D. in Sanskrit literature

Question 106

Question
Which of the following policy issues could be studied with the tools of microeconomics?
Answer
  • The effects of tariffs on the price of belts.
  • The effects of the payroll tax on the net-of-tax wages received by workers.
  • The effects of rent controls on the quantity of apartments
  • The effects of unions on the wages of non-union workers.
  • All of the above.

Question 107

Question
The demand for pedicures increases (i.e., the demand curve for pedicures shifts to the right). As a result, what will happen to the equilibrium price and quantity of pedicures?
Answer
  • Equilibrium price will increase, equilibrium quantity will increase.
  • Equilibrium price will increase, equilibrium quantity will decrease.
  • Equilibrium price will decrease, equilibrium quantity will increase.
  • Equilibrium price will decrease, equilibrium quantity will decrease.
  • Nothing will happen.

Question 108

Question
For any firm (regardless of market structure), if the price is greater than average variable cost, the profit-maximizing quantity of output will be the quantity at which
Answer
  • marginal revenue is equal to marginal cost.
  • demand is inelastic.
  • price is equal to marginal cost.
  • marginal revenue is negative
  • (a) and (c).

Question 109

Question
Perfect competition and monopolistic competition are similar in some ways, and different in other ways. Which of these is a way in which perfect competition and monopolistic competition are similar?
Answer
  • Firms in each of these market structures will charge P=MC.
  • In each of these market structures, the tendency will be toward zero economic profit.
  • For firms in each of these market structures, the firm’s demand curve is perfectly elastic.
  • All of the above.
  • (a) and (b) only.

Question 110

Question
All else equal, an increase in the demand for highly skilled labor will lead to _______ in the distribution of labor-market earnings, and an increase in the supply of highly skilled labor will lead to __________ in the distribution of labor-market earnings.
Answer
  • greater inequality, greater inequality
  • greater inequality, less inequality
  • less inequality, greater inequality
  • less inequality, less inequality
  • not enough information has been given to answer the question

Question 111

Question
Mr. Hagrid has received a promise that he will be paid $1000, exactly five years from now. There is no uncertainty: he is absolutely certain that he will receive the $1000. The interest rate is 10%. What is the present discounted value of the payment?
Answer
  • $1000
  • $1000 / 1.1
  • $1000 / 1.5
  • $1000 / 5
  • $1000 / (1.1)^5

Question 112

Question
The Lorenz Curve in country A is closer to the horizontal axis than the Lorenz Curve for country B. In other words, the Lorenz Curve for country A is always below the Lorenz Curve for country B. This means that
Answer
  • the Gini Ratio for country A is greater than the Gini Ratio for country B.
  • the Gini Ratio for country A is less than the Gini Ratio for country B.
  • the distribution of income is more equal in country A than in country B.
  • (a) and (c).
  • none of the above.

Question 113

Question
The marginal revenue product of labor is
Answer
  • the change in the wage rate as a result of hiring one additional worker.
  • the quantity of output, divided by the number of workers.
  • the marginal product of labor, multiplied by the firm’s marginal revenue.
  • an upward-sloping curve.
  • All of the above.

Question 114

Question
Assume that the individual consumer takes the market price as given. Then, the individual demand curve is
Answer
  • the marginal-revenue curve.
  • the marginal-revenue-product curve.
  • the marginal-utility curve.
  • the average-variable-cost curve.
  • all of the above.

Question 115

Question
What will have happened if the Gini coefficient were to become smaller?
Answer
  • An increase in inequality.
  • A movement toward the minimum point of the average-total-cost curve.
  • An increase in incomes.
  • A decrease in inequality.
  • An increase in the odds of winning the lottery.

Question 116

Question
In the last quarter of the 20th century, there was a large increase in the demand for highly skilled labor (i.e., the demand curve for highly skilled labor shifted to the right). What happened as a result?
Answer
  • There was an increase in the gap between the wages of highly skilled workers and the wages of less skilled workers.
  • There was a decrease in the gap between the wages of highly skilled workers and the wages of less skilled workers.
  • There was an increase in compensating wage differentials.
  • There was an increase in the gender earnings gap.
  • (b), (c), and (d)

Question 117

Question
The income elasticity of demand for good Z is negative. This indicates that good Z is
Answer
  • a normal good.
  • an inferior good.
  • an input in the production of slide guitars.
  • inelastic.
  • a good with negative marginal revenue.

Question 118

Question
Assume that the United States enforces an import quota on imported cummerbunds. Which of the following groups would gain from the import quota?
Answer
  • Domestic consumers.
  • Foreign producers.
  • The holders of the license to import cummerbunds.
  • All of the above.
  • None of the above.

Question 119

Question
The elasticity of demand for volleyballs is 0.5. The price of a volleyball decreases by 10%. What will happen to the quantity demanded?
Answer
  • Quantity demanded will rise by 1%.
  • Quantity demanded will rise by 5%.
  • Quantity demanded will rise by 10%.
  • Quantity demanded will rise by 20%.
  • Quantity demanded will rise by 50%.

Question 120

Question
The opportunity cost of action A is
Answer
  • the value of what must be given up, in order to pursue A
  • measured by including only the explicit, out-of-pocket costs of A.
  • a once-in-a-lifetime opportunity.
  • something that comes knocking on your door.
  • all of the above.

Question 121

Question
The Law of Supply states that
Answer
  • the supply curve will shift to the right when there is a decrease in the price of one of the inputs.
  • the supply curve will shift to the right when there is an improvement in technology.
  • when the price increases, there will be an increase in the quantity supplied.
  • All of the above.
  • None of the above

Question 122

Question
Arthur Weasley invests money in a savings account. The interest rate is 8%. If the interest rate stays at 8%, and if Arthur never makes a withdrawal, about how long will it take for him to double his money?
Answer
  • 8 years
  • 9 years
  • 10 years
  • 12 years
  • 72 years

Question 123

Question
In the diagram at right, the net-of-tax supply curve is at $5, and the gross-of-tax supply curve is at $8. The demand curve is the downward-sloping line with a horizontal intercept of 15. What is the deadweight loss of the tax?
Image:
EC201Exam3.PNG (image/PNG)
Answer
  • $3
  • $5
  • $6
  • $10
  • $12

Question 124

Question
The equilibrium price of karakasevs is $10. The government enforces a price ceiling in the market for karakasevs, at a price of $20. What will happen as a result of the price-ceiling law?
Answer
  • The law will have no effect.
  • The law will lead to a surplus.
  • The law will lead to a shortage.
  • All of the above.
  • None of the above.

Question 125

Question
If a tax is progressive,
Answer
  • higher-income people pay no taxes.
  • higher-income people pay a higher percentage of their incomes in tax.
  • higher-income people pay less tax than lower-income people.
  • higher-income people pay a lower percentage of their incomes in tax.
  • all people pay the same percentage of their incomes in tax.

Question 126

Question
As quantity increases, average fixed cost
Answer
  • always decreases.
  • is a horizontal line.
  • always increases.
  • decreases at first, then reaches a minimum, and then increases.
  • caroms about wildly, in a completely chaotic way.

Question 127

Question
The supply curve for beef shifts to the right. Assuming that the demand for beef is inelastic, what will happen to the total revenue received by cattle ranchers?
Answer
  • Revenue will increase.
  • Revenue will decrease.
  • Revenue will remain constant.
  • We need more information to answer the question.
  • All of the above! Amazingly, revenue will increase, and decrease, and remain constant, and we need more information to answer the question, all at the same time.

Question 128

Question
Which of the following companies was broken up as a result of an antitrust action?
Answer
  • Standard Oil.
  • American Tobacco.
  • ALCOA.
  • AT&T.
  • All of the above.

Question 129

Question
Which of the following could lead to higher prices for the consumers in the importing country?
Answer
  • A tariff.
  • An import quota that is enforced at a level below the equilibrium quantity.
  • A voluntary export restraint that is enforced at a level below the equilibrium quantity.
  • All of the above.
  • None of the above.

Question 130

Question
Which of the following is/are a characteristic of a perfectly competitive industry, but not a characteristic of any other kind of industry? (That is, we are looking for characteristics that do not apply to either a monopoly or an oligopoly or a monopolistically competitive industry.)
Answer
  • a. Price is equal to marginal cost at the profit-maximizing quantity.
  • Firms take the market price as given.
  • As a result of entry and exit, the industry will tend toward zero economic profit.
  • All of the above.
  • (a) and (b) only.
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