Econ 101 Final exam ( latest update ) Graded A+

Econ 101 Final exam 1. A change in the price of a good has two effects on quantity demanded; these are A. the income effect and the utility effect. B. the substitution effect and the utility effect. C. the indifference effect and the substitution effect. D. the income effect and the substitution effect. E. the indifference effect and the income effect. 2. Assume that the technology used by firms improves. As a result, supply shifts from to and the equilibrium price moves from to . A. S2; S1; $30; $60 B. S1; S2; $30; $60 C. S2; S1; $60; $30 D. S1; S2; $60; $30 E. S1; S2; $60; $60 3. When the government imposes a per-unit tax on a product that has a downward-sloping demand curve and an upward-sloping supply curve, the price consumers pay for the product A. increases by the amount of the per-unit tax. B. increases by less than the amount of the per-unit tax. C. decreases by the amount of the per-unit tax. D. decreases by less than the amount of the per-unit tax. E. remains unchanged. Harvey quit his job at the University of Toronto where he earned $45,000 a year. He figures his entrepreneurial talent, or forgone entrepreneurial income, to be $5000 a year. He cashed in $100,000 in bonds that earned 10% interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 per unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. 4. Refer to the above information. The economic profit in the first year was A. $50,000. B. $70,000. C. $160,000. D. $220,000. E. $250,000. 5. Refer to the above information. The normal profit in the first year was A. $5000. B. $10,000. C. $45,000. D. $60,000. E. $250,000. 6. A market comprised of a downward-sloping demand curve and an upward-sloping supply curve is said to be stable because A. price will never change. B. quantity will never change. C. demand will never change. D. supply will never change. E. at any price other than equilibrium, forces in the market move the price towards the equilibrium. 7. Refer to the graph above. If this firm were allowed to choose the profit-maximizing level of output, it would charge a price of A. $11.50 per unit. B. $9 per unit. C. $8 per unit. D. $5.50 per unit. E. $2.50 per unit. 8. Refer to the graph above. If this firm were allowed to choose the profit-maximizing level of output, it would produce A. 300 units of output. B. 1000 units of output. C. 1400 units of output. D. 1600 units of output. E. 1800 units of output. Joe is the owner of the PetroCanada Mini Mart, Sam is the owner of the BP Mini Mart, and together they are the only gas stations in town. At the current price of $1 per litre, each receives total revenue of $1000. Joe is considering cutting his price to 90 cents per litre, which would increase his total revenue to $1350. If Sam's price remains at $1 per litre after Joe cuts his price, Sam will collect $500 in revenue. If Sam cuts his price to 90 cents per litre, his total revenue would also rise to $1350 if Joe continues to charge $1 per litre. Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre. Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre. You may find it easier to answer the following questions if you fill in the payoff matrix below. 9. Refer to the information given above. To Sam, cutting his price to 90 cents per litre is a(n) A. submissive strategy. B. dominant strategy. C. dominated strategy. D. disequilibrium. E. profit-maximizing strategy. 10. Refer to the information given above. The Nash equilibrium for this game is that A. Joe will cut his price and Sam will not. B. Joe will cut his price and Sam might. C. Sam will cut his price and Joe will not. D. neither will cut their price. E. both will cut the price to 90 cents per litre. 11. Refer to the indifference map above, with budget constraint, B. The highest level of satisfaction that the consumer can achieve is represented by point A. A. B. C. C. D. D. E. E. F. 12. Which of the following is NOT a determinant of demand for gasoline? A. The price of gasoline. B. The price of diesel. C. The price of automobiles. D. The quantity of gasoline supplied. E. Consumers' incomes. 13. Suppose that the demand curve for a good is given by QD = 100 – 2PD, while the supply curve for the good is given by QS = 60 + 2PS. If the price in this market is currently equal to 20, then there is currently in the amount of units. A. excess demand; 20 B. excess demand; 40 C. excess supply; 20 D. excess supply; 40 E. excess supply; 100 14. Some economics students cite the following three factors that may cause the demand curve for houses in Calgary to shift to the right when the price of oil rises: (1) the population in Calgary increase during oil booms; (2) the income of individuals increase during oil booms; (3) the price of the average house rises substantially during oil booms, but is not expected to rise further. Which of the above factors were cited correctly? A. Factor 1 only. B. Factor 2 only. C. Factor 3 only. D. Factors 1 and 2. E. Factors 1, 2, and 3. 15. Refer to the table above. At the point of profit maximization, a perfectly price-discriminating monopolist would collect total revenue of A. $17. B. $33. C. $42. D. $55. E. $57. 16. Refer to the table above. If the monopolist were able to perfectly price discriminate, he would charge for the first unit and for the fifth unit. A. $5; $5 B. $17; $5 C. $5; $17 D. $15; $3 E. $17; $17 17. Refer to the table above. When the perfectly price-discriminating monopolist maximizes profit, consumer surplus is A. $0. B. maximized. C. $9. D. $45. E. $36. 18. Refer to the table above. A perfectly price-discriminating monopolist would produce A. 1 unit. B. 3 units. C. 4 units. D. 5 units. E. 6 units. Left Panel: The farm: the farm's short-run costs. Right Panel: The market: a shift of short-run supply in response to an increase in demand. 19. Refer to the diagrams above. If the market demand for wheat and the market supply of wheat are represented by D and SRS, respectively, the firm will charge per bushel and produce thousand bushels of wheat per year. A. $1.10; 10 B. $1.10; 12 C. $1.12; 12 D. $1.20; 10 E. $1.20; 12 20. Refer to the diagrams above. If the market demand for wheat and the market supply of wheat are represented by D and SRS, respectively, the firm is A. making zero economic profit, so it should neither expand nor contract. B. making zero economic profit, so it should shut down. C. making zero economic profit, so it should contract. D. making zero economic profit, so it should expand. E. making zero economic profit, so it should raise its price. 21. Refer to the diagrams above. If the market demand for wheat and the market supply of wheat are represented by D' and SRS, respectively, the market price is per bushel and the firm will produce bushels of wheat per year. A. $1.20; 12 million B. $1.20; 12 thousand C. more than $1.20; more than 12 thousand D. less than $1.20; more than 12 million E. more than $1.20; more than 12 million 22. Refer to the diagrams above. If the market demand for wheat and the market supply of wheat are represented by D' and SRS, respectively, the firm is making a profit of A. $0.20. B. $0.80. C. $240. D. $960. E. $1000. 23. Refer to the information above. If the output price is 50 cents and rent increases from $75 to $100, the price taker will A. reduce output because marginal cost has fallen. B. increase output because marginal cost has fallen. C. reduce output because marginal cost has risen. D. increase output because marginal cost has risen. E. leave output unchanged because marginal cost is unchanged. 24. Refer to the information above. The marginal cost of increasing output from 135 units to 180 units is A. $1.55. B. 93 cents. C. 62 cents. D. 34 cents. E. 22 cents. 25. Refer to the information above. If the output price for its good is 50 cents, this price taker should produce A. more than 225 units. B. more than 135 units but less than 180 units. C. between 45 and 90 units. D. more than 180 units but less than 225 units. E. between 0 and 45 units. 26. Refer to the information above. If the wage rate rises from $7 to $8, the marginal cost of increasing output from 135 units to 180 units A. remains constant at 62 cents. B. increases to 71 cents. C. remains constant at 78 cents. D. increases to 84 cents. E. increases to 91 cents. 27. Refer to the diagram above. Assume that a price ceiling is imposed at point G, i.e., the price is now represented by the distance 0G. The deadweight loss due to the price ceiling is represented by the area A. FEC. B. DAC. C. GJECF. D. GJEF. E. (JAE + DGF). 28. Refer to the diagram above. Assume that a price ceiling is imposed at point G, i.e., the price is now represented by the distance 0G. After the price ceiling is imposed, producer surplus and is now represented by the area . A. increases; DBC B. decreases; DGF C. increases; 0GFQ2 D. decreases; 0DFQ2 E. does not change; DGF 29. If supply is P = 20 + 10Q and P = $22, the price elasticity of supply is A. 22. B. 11. C. 1.1. D. 0.11. E. 0.011. 30. Refer to the diagram above. The firm is experiencing economies of scale when output is A. less than 18 units. B. between 18 and 21 units. C. greater than 21 units. D. greater than 18 units. E. less than 21 units. 31. Refer to the table above. Assuming the monopolist does not price-discriminate, then, at the point of profit maximization, the firm will earn a profit of A. –$1. B. $14. C. $23. D. $26. E. $45. 32. Refer to the table above. Assuming the monopolist does not price-discriminate, he will produce units and charge a price of . A. 1; $17 B. 2; $14 C. 3; $11 D. 4; $5 E. 6; $2 33. Refer to the table above. Demand, between $2.60 and $2.80, is A. elastic. B. unit-elastic. C. inelastic. D. perfectly elastic. E. perfectly inelastic. 34. A price taker's output price is $5 and the firm is producing 37 units with a marginal cost of $3. The firm should A. lower its price. B. decrease production. C. increase production. D. raise its price. E. lay off workers. 35. Price ceilings result in A. increased total economic surplus. B. shortages. C. surpluses. D. quantity supplied exceeding quantity demanded. E. the same total economic surplus, with a reallocation from producers to consumers. 36. Refer to the diagram above. If the price is currently $16.30 per unit, consumer surplus equals A. $1400. B. $600. C. $423.50. D. $1171.50. E. $1350. 37. Refer to the diagram above. If the current price is $16.30 per unit, producer surplus equals A. $1400. B. $600. C. $423.50. D. $1171.50. E. $1350. 38. Refer to the diagram above. The difference between total surplus when quantity supplied is equal to quantity demanded and total surplus when price is $16.30 and quantity is 110 is A. $405. B. $423.50. C. $600. D. $800. E. $1000. 39. Refer to the diagram above. When quantity supplied and quantity demanded are equal, producer surplus is equal to A. $600. B. $1200. C. $1400. D. $2000. E. $2400. 40. Refer to the diagram above. When quantity supplied and quantity demanded are equal, consumer surplus is equal to A. $600. B. $1200. C. $1400. D. $2000. E. $2400. The market for bagels in Charlottetown, PEI contains two firms: BagelWorld (BW) and Bagels'R'Us (BRU). The owners of the two firms decide to fix the price of bagels. The table shows the total revenue the firms will collect if they abide by the price-setting agreement or if they cheat on the agreement. 41. Based on the payoff matrix above, Bagel World finds that is its . A. abiding by the agreement; dominant strategy B. cheating on the agreement; dominated strategy C. either cheating or abiding; dominant strategy D. cheating on the agreement; dominant strategy E. either cheating or abiding; dominated strategy The payoff matrix below shows the extra profit firms X and Z will earn from two different strategies, A and B. 42. Refer to the payoff matrix above. This game is because . A. a Nash equilibrium; both firms pick the same strategy B. a prisoner's dilemma; both firms have a dominant strategy C. not a prisoner's dilemma; playing their dominated strategies does not make both firms better off D. not a prisoner's dilemma; both firms pick different strategies E. not a Nash equilibrium; the outcome is indeterminate 43. If an individual consumer is willing to pay $11 for one unit of a good but finds he can purchase it for $7, he has a consumer surplus of A. $18. B. $11. C. $7. D. $4. E. $2. 44. Refer to the table above. The market demand curve indicates that, at a price of $2.50, hamburgers will be demanded. A. 3 B. 6 C. 10 D. 16 E. 19 45. Refer to the table above. At a price of $2.50, total expenditure on hamburgers will be A. $47.50. B. $40. C. $25. D. $15. E. $7.50. 46. On the basis of the above table, it appears that has the highest demand for hamburger and has the lowest. A. Chris; Mallory B. Chris; Laura C. Laura; Mallory D. Mallory; Chris E. Laura; Chris In the diagram above, D represents the original demand curve, S represents the original supply curve, and S' represents the supply curve once a per-unit tax is imposed. 47. Refer to the diagram above. The deadweight loss due to the tax is represented by the area A. EACI. B. LKCI. C. HJC. D. IHC. E. IJC. 48. Refer to the diagram above. The amount of tax revenue raised by this tax is equal to the area represented by the area A. EGJCI. B. AGJH. C. EAHI. D. IJC. E. EGJI. 49. Consumers with more elastic demand will bear a smaller burden of a tax because A. they have more buying power. B. they have less market power. C. they will switch to other products when a tax is imposed. D. they have fewer substitutes for that good. E. they will produce the taxed good themselves. The above graphs represent the demand for tea tasters for Firm A and Firm B. These firms are the only ones that employ labour in this particular occupation. 50. Refer to the table above. The marginal revenue of selling the third unit is A. $24. B. $8. C. $6. D. $4. E. $2. 51. Refer to the table above. When the firm lowers price from $8 to $7, marginal revenue is less than $7 because A. marginal cost is greater than $3. B. the consumer only pays $4 for the fourth unit. C. the firm is charging $1 less for each of the first three units of output. D. demand is perfectly elastic. E. the firm only collects $4 for the fourth unit. 52. If a per-unit tax is imposed on producers in a market that is in equilibrium, the more elastic the supply curve, the A. more likely the deadweight loss is to be affected. B. larger the deadweight loss. C. larger the deadweight loss to producers. D. smaller the deadweight loss to consumers. E. smaller the deadweight loss. 53. The best explanation for placing taxes on tobacco products and alcohol is that A. smoking and drinking are sinful behaviours. B. they punish producers of tobacco and alcohol. C. the public supports taxing these items. D. demand for tobacco and alcohol tends to be inelastic. E. demand for tobacco and alcohol tends to be elastic. 54. A dominant strategy occurs when A. one player has a strategy that yields the highest payoff independent of the other player's choice. B. both players have a strategy that yields the highest payoff independent of the other's choice. C. both players make the same choice. D. the payoff to a strategy depends on the choice made by the other player. E. each player has a single strategy. 55. An increase in the demand for GM automobiles results in A. a lower equilibrium price for GM automobiles. B. an increase in the quantity of GM automobiles supplied. C. an increase in the supply of GM automobiles. D. a lower equilibrium quantity of GM automobiles. E. a decrease in the quantity of GM automobiles supplied. 56. Two competitive firms are located side by side. If firm A advertises, firm B will get new customers too, even though it does not have to pay for the advertising cost. The same scenario is true for A if B advertises. If both advertise, the amount of extra revenue generated would just offset the advertising costs. In such case, game theory suggests A. that only A will advertise. B. that only B will advertise. C. that both A and B will advertise. D. that neither A nor B will advertise. E. nothing in terms of predicting the outcome of the game. 57. Which of the following will NOT cause a shift in the supply curve for Athlon processors? A. An increase in the price of memory. B. A decrease in the price of Intel processors. C. A decrease in the price of motherboards. D. A decrease in the price of Athlon processors. E. An increase in the wages paid to high-tech workers. 58. The firm illustrated in the diagram above is a(n) A. natural monopolist. B. price-discriminating monopolist. C. perfect competitor. D. oligopolist. E. monopolistic competitor. 59. Refer to the diagram above. If left unregulated, the firm would produce units and charge a price of . A. Q2; P2 B. Q1; P1 C. Q3; P3 D. Q1; P3 E. Q4; P1 60. Refer to the diagram above. Assume that the regulator sets price where price equals marginal cost. Then, the government must be prepared to A. force the monopolist to accept losses. B. impose a higher tax on the monopolist. C. subsidize the monopolist. D. increase consumer surplus. E. increase production of the good in question. 61. Refer to the diagram above. The socially efficient level of output is units with a price of . A. Q1; P1 B. Q2; P2 C. Q3; P3 D. Q1; P3 E. Q4; P1 62. Beth has $20 to spend on apples and bananas. Apples cost $3 per kilogram and bananas cost $2 per kilogram. Using A to represent the quantity of apples and B to represent the quantity of bananas, Beth's budget constraint can be written as A. 20 = 2A + 3B. B. 20 = 3A – 2B. C. 3A = 20 + 2B. D. 20 = 3A + 2B. E. 3B = 2A – 20. 63. Suppose that the demand curve for a good is given by QD = 80 – PD, while the supply curve for the good is given by QS = 3PS. The equilibrium quantity is and the equilibrium price is . A. 60; 20 B. 20; 60 C. 20; 20 D. 60; 60 E. 30; 80 64. Refer to the graph above. If the price of the product is $4, A. new firms will enter the industry. B. firms will exit the industry. C. the industry will be in a long-run equilibrium. D. the firm will incur an economic loss of approximately $160 per day. E. the firm will incur an economic profit of approximately $160 per day. 65. Refer to the graph above. If a firm was originally producing on SATC3 but now desires to reduce its output to 600 units, in the short run it will use the plant size represented by A. SATC1. B. SATC2. C. SATC3. D. SATC4. E. SATC2 and SATC3. 66. Refer to the graph above. The loss of consumer surplus resulting from monopoly is A. $112.50. B. $200. C. $312.50. D. $425. E. $450. 67. If a price taker produces an output level where price is greater than marginal cost, then the firm should A. pay more to its variable factors of production. B. pay more to its fixed factors of production. C. decrease output to earn a higher profit or a smaller loss. D. increase output to earn a higher profit or a smaller loss. E. leave its output decision unchanged. Consider the market to be in equilibrium with demand curve D and supply curve S. 68. Refer to the diagram above. Suppose that a $1 per-unit tax is imposed on sellers. The new equilibrium price is and the new equilibrium quantity is units. A. $9.20; 7 B. $8.88; 8 C. $8.80; 7 D. $8.20; 7 E. $8.20; 8 69. Refer to the diagram above. Suppose that a $1 per-unit tax is imposed on sellers. The share of the tax burden borne by consumers is A. $1. B. 80 cents. C. 60 cents D. 40 cents. E. 20 cents. 70. Suppose that one knows two facts: the market for automobile tires experiences chronic shortages and the government sets the price of automobile tires. One can infer that A. the government has established a price ceiling for tires. B. the quantity of tires supplied exceeds the quantity of tires demanded. C. the government has established a price floor for tires. D. the demand for tires exceeds the supply of tires. E. the government is trying to protect the incomes of tire manufacturers. 71. Refer to the graph above. The gap between point L and point M represents A. average total cost. B. average cost of 5 units of output. C. average variable cost of 5 units of output. D. average fixed cost of 5 units of output. E. average profit of 5 units of output. 72. Which of the following is NOT true of a Nash equilibrium in a game involving players A and B? A. Given the strategies of B, player A has chosen the highest payoff strategy. B. Neither player A nor player B wants to choose a different strategy. C. Both players would not wish to change their choices. D. Both players must have dominant strategies. E. Given the strategies of A, player B has chosen the highest payoff strategy. 73. A market in disequilibrium would feature A. a stable price. B. consumers able to purchase all they wish at the market price. C. a stable quantity. D. either excess supply or excess demand. E. firms able to sell all they wish at the market price. 74. For a linear supply curve with a positive vertical intercept, if the price elasticity of supply is 1.2 at a price of $7, then at a price of $5, the elasticity must be A. greater than 1.2. B. less than 1.2. C. more inelastic. D. less elastic. E. indeterminate; there is insufficient information to evaluate. 75. Refer to the table above. If the price of Good A is $5 and the price of Good B is $4, then the rational spending rule predicts that units of Good A and units of Good B will be purchased. A. 3; 3 B. 1; 3 C. 4; 2 D. 3; 2 E. 2; 1 76. Refer to the table above. If the price of Good A is $1 and the price of Good B is $3, then the rational spending rule predicts that units of Good A and units of Good B will be purchased. A. 4; 3 B. 3; 4 C. 4; 4 D. 3; 3 E. 1; 2 77. The efficient quantity of a good is the quantity that results in A. the maximum possible economic surplus from producing the good. B. the maximum possible economic surplus from consuming the good. C. the maximum possible economic surplus from producing and consuming the good. D. the maximum possible economic surplus from producing the good minus the maximum possible economic surplus from consuming the good. E. the maximum possible economic surplus from consuming the good minus the maximum possible economic surplus from producing the good. 78. A cross-price elasticity of 0.83 indicates the two goods are A. substitutes. B. inelastic. C. complements. D. normal. E. elastic. 79. For which of the demand elasticities is the sign (positive or negative) important in interpreting the meaning? A. Only the price elasticity of demand. B. Both the price elasticity of demand and the income elasticity of demand. C. Both the income elasticity of demand and the cross-price elasticity of demand. D. Only the cross-price elasticity of demand. E. All three elasticities (price, income, and cross-price). 80. Refer to the indifference curve in the diagram above. The marginal rate of substitution is A. greater at A than at C. B. greater at C than at B. C. greater at C than at A. D. smaller at A than at B. E. the same at A as it is at C. Final exam Key 1. D 2. D 3. B 4. C 5. D 6. E 7. A 8. B 9. B 10. E 11. B 12. D 13. D 14. D 15. E 16. B 17. A 18. E 19. A 20. A 21. B 22. D 23. E 24. C 25. B 26. B 27. A 28. B 29. B 30. A 31. D 32. C 33. A 34. C 35. B 36. C 37. D 38. A 39. A 40. C 41. D 42. C 43. D 44. E 45. A 46. A 47. E 48. E 49. C 50. C 51. C 52. B 53. D 54. A 55. B 56. D 57. D 58. A 59. B 60. C 61. C 62. D 63. A 64. C 65. C 66. B 67. D 68. A 69. D 70. A 71. D 72. D 73. D 74. A 75. B 76. A 77. C 78. A 79. C 80. A Final exam Summary Category # of Questions FrankBernanke - Chapter 003 11 FrankBernanke - Chapter 004 16 FrankBernanke - Chapter 005 11 FrankBernanke - Chapter 006 14 FrankBernanke - Chapter 007 22 FrankBernanke - Chapter 008 21 FrankBernanke - Chapter 009 10 FrankBernanke - Chapter 012 1 Learning Objective: 3.1 Markets and Prices 4 Learning Objective: 3.2 Markets and Social Welfare 1 Learning Objective: 3.3 Explaining Changes in Prices and Quantities 5 Learning Objective: 4.2 Choices and the Law of Demand 2 Learning Objective: 4.4 Individual and Market Demand Curves 3 Learning Objective: 4.6 Income Elasticity and Cross-Price Elasticity of Demand 2 Learning Objective: 4A "Average" Price Elasticity of Demand: The Arc (or Midpoint) Formula 1 Learning Objective: 5.2 Graphing the Relationships among Total, Average, and Marginal Values 6 Learning Objective: 5.3 Cost, Profit Maximization, and Supply in the Short Run: Additional Graphs 1 Learning Objective: 5.5 The Price Elasticity of Supply 2 Learning Objective: 6.1 The Central Role of Economic Profit 2 Learning Objective: 6.2 How Competition Affects the Size of Firms 6 Learning Objective: 6.3 Firm Size and the Shape of the Long-Run Average Cost Curve 1 Learning Objective: 7.3 Economic Surplus 6 Learning Objective: 7.4 The Cost of Preventing Price Adjustments 4 Learning Objective: 7.7 Taxes and Efficiency 8 Learning Objective: 8.4 Profit Maximization for the Monopolist 6 Learning Objective: 8.5 Why the Invisible Hand Breaks Down under Monopoly 1 Learning Objective: 8.6 Using Discounts to Expand the Market 4 Learning Objective: 8.7 Public Policy toward Monopoly 4 Learning Objective: 9.1 The Theory of Games 5 Learning Objective: 9.2 The Prisoner's Dilemma 2 Learning Objective: Appendix 4B Indifference Curves 4 Level of Difficulty: Difficult 29 Level of Difficulty: Easy 15 Level of Difficulty: Medium 36 Level of Learning: Application 70 Level of Learning: Challenge 1 Level of Learning: Comprehension 9 Type: Calculation 30 Type: Comprehension 1 Type: Data Analysis 2 Type: Graphical 28 Type: Word 14 Type: Word Problem 5