University Of Arizona University Of Arizona - ECON 200 Exam 2 Sample Question n Answers.

University Of Arizona University Of Arizona - ECON 200 Exam 2 Sample Answers. University Of ArizonaUniversity Of Arizona - ECON 200 Exam 2 Sample Answers. CHAPTER 7 (1) Generally speaking, the government is better at providing public goods than the market is because public goods are: B. non-excludable and non-rival (2) London and Stockholm each use congestion charges to discourage driving. Which city has the best system and why? A) Stockholm because they established a dynamic-price congestion charge. (3) Which concept is most closely associated with the underproduction of goods? A) Free-riding B) Positive externalities (4) A roofing company decides to fix the leaky roof during your scheduled class. The noise impairs the ability of you and the others in class to learn the material. This is a A) negative externality (5) How would alter your transportation decisions if you had to pay for the pollution (a social cost) that your vehicle creates? A) You would drive less since the social cost (of pollution) would now be considered part of the private cost of driving. (6) If government regulations force a business to take into account social costs it will A) reduce production and charge a higher market price. (7) My neighbor has a large satellite dish on his roof that blocks sunlight into my house. Since I need my sun, I talk to him and I agree to pay him $200 and he switches to basic cable and takes down the satellite dish. We reached this agreement A) Because that’s what the Coase Theorem says (8) When social and private costs differ, economists state that there is an externality. (9) You enjoy watching Arizona compete during March Madness on cable television while eating a pizza with your friends. Where would you place cable television and pizza on the following grid? They need not be in the same box. Excludable Non-Excludable Rival Pizza Non-Rival Cable TV (10) What are the two characteristics of a common resource good? A) Non-excludable and rival (11). Generally speaking, the public sector is better at managing ___________ and prices are better at rationing _____________. A) common-resource and public goods; private and club goods (12) Based on the economic definition of public goods, which of the following is the best example of a public good? A) National defense (13) Which of the following is one of the advantages of private property? A) The incentive to maintain. (14) Consider a public television station that relies on donations to maintain operation. Herman enjoys watching this channel a lot, but he does not donate any money to keep the channel alive. Thus Herman is: B) a free-rider For problems (15) to (18) connect each description on the left with the appropriate term on the right. (15) Tuna in the Atlantic Ocean Club good (16) The Aurora Borealis Private good (17) A membership at a gym Public good (18) Pizza from Mellow Mushroom Common resource good (19) When the guys from South Park visit the water park and too much “pee” causes the water to become yellow we observe C. the tragedy of the commons. (20) Which of the following meets the definition of a public good and therefore must be provided by the public sector? C. Tornado sirens (21) Which of the following is one of the advantages of private property? B. The incentive to conserve. (22) A group of friends goes out to eat together and they agree to split the bill equally. They order an extra large pizza to share. Despite the fact that they were not very hungry the pizza gets eaten very quickly. What economic concept explains why the pizza is consumed so quickly? B. It is a common property problem (23) A city wants to reduce congestion during the morning and evening rush hour without having to build any new roads, which strategy will be most effective? C. Dynamic congestion pricing. (24) If government taxes a firm in order to achieve the social optimum, this will C. lower the quantity produced and cause the firm to charge a higher market price. . (25) My neighbor has a rooster that crows at the break of dawn. I like to sleep in so I give my neighbor $100 and she sells the rooster. This solution is most consistent with: A. The Coase Theorem. (26) When the social and private costs differ C. there is an externality. (27) Where would you place satellite TV on the following grid? Excludable Non-Excludable Rival Non-Rival Sat TV (28) What would an environmental economist say about electric-powered vehicles? A. EVs are better for the environment than gas-powered vehicles in some states, and gas-powered vehicles are better for the environment in other states. (29) If the United States wants to use its existing infrastructure (roads, mass transit, parking) more effectively to reduce congestion it makes the most sense to implement A. dynamic-price congestion charges. CHAPTER 8 (30) If a firm is producing where MC is sloping downwards and MC is below the AVC, then A) ATC is decreasing. (31) Which of the following is FALSE? A) None of the above. All are true. (32) At Disneyland a one-day pass is $100, a two-day pass is $130, and a three-day pass is $150. What is the marginal cost of purchasing a three-day pass compared to the two-day pass? A. $ 20 (33) In the table, diminishing marginal returns begin Input Total Product 0 0 1 10 2 35 3 70 4 120 5 165 6 175 7 170 8 155 A) after the 4th unit of input (34) Given the table below calculate the average variable cost of producing three (3) units of the good? Output Total fixed cost Total variable cost Total cost Average fixed cost Average variable cost Average total cost Marginal cost 1 $500 $80- $580 $500 $80 $580 $20 2 $500 $100 $600 $250 $50 $300 $20 3 $500 $120 $620 $166.67 ____ $206.67 $20 4 $500 $140 $640 $125 $35 $160 $20 5 $500 $160 $660 $100 $32 $132 A) $40 (35) In the table below, diminishing marginal utility begins Units Bought Total utility 0 0 1 8 2 25 3 41 4 56 5 70 6 83 7 95 8 93 A) after the 2nd unit (36) The MC curve goes through the minimum point of which of the following curves? A) ATC, AVC (37) The MC curve eventually rises as output increases in the short run because of A) the law of diminishing returns (38) If a firm is unable to vary any of the factors of production it is operating in A) the immediate run (39) Where does diminishing marginal returns to labor begin? Total Workers Total Output 0 --- 1 8 2 17 3 22 4 25 5 22 6 -17 7 -10 A) after the 2nd worker (40) What explains why the SR AVC curve eventually increases as output rises? A) the law of diminishing returns (41) When Super Stuff Corporation produces 5,000 units, total costs equal $150,000 and total variable costs equal $75,000. At this level of output, what is Super Stuff’s average fixed cost? A) $15 (42) A company is currently producing 20 togas at an average total cost of $20. Given the table below, should the firm produce the 21st togas if it can sell it for $39? # of togas Average cost 20 $20 21 $21 Please circle your answer: YES or NO (43) In the following table find the value of A: Output Total fixed cost Total variable cost Total cost Average fixed cost Average variable cost Average total cost Marginal cost 1 ____ $200 ____ ____ ____ $300 ____ 2 $100 $400 ____ ____ ____ ____ _100_ 3 ____ ____ $600 ____ ____ ____ ____ 4 ____ $350 ____ ____ ____ ____ ____ 5 ____ ____ ____ ____ $40 ____ CHAPTER 9 (44) The MR curve for a price taker is A) horizontal (45) If A = 10, B = 8 and C = 20 then the total profit is? a. $ 40 (46) If your revenue while producing is greater than your variable cost you should a. operate in the short run. (47) (From InQuizitive CH 9) Competitive markets have many SELLERS/TYPES OF GOODS, firms with SIMILAR/DIFFERENT products, BARRIERS TO ENTRY/FREE ENTRY AND EXIT for firms, and firms that are PRICE MAKERS, PRICE TAKERS. d. sellers, similar, free entry and exit, price takers (48) MR = MC is a rule used to determine when to STOP production? (49) Which of the following is an assumption of perfect competition? A) Each firm is small relative to the market. (50) Consider a perfectly competitive industry where all firms are making a loss. All of the following are true EXCEPT A) Government intervention is necessary to ensure that the industry survives. (51) What quantity should a firm produce if it wants to maximize profit? A) D (52) Your business currently charges the profit-maximizing price, but you are making a loss. Which of the following should you do? Shut down if your price is less than your average variable cost (AVC). (53) When the perfectly competitive firm is at its breakeven point in the long run which of the following is true? A) It is operating at the lowest point on its ATC curve. (54) Which of the following is the best example of a perfect competitor? A) Fruit Market (55) If price is below the AVC curve, which options (shut down temporarily, operate to minimize loss, or go-out-of-business) should a business consider? A) Depending on your expectations about future demand, either shut down or go-out-business (56) In perfect competition, if the price of the good is higher than the AVC, but lower than the ATC, and the business environment is optimistic, then a firm will A) Operate in the short run (57) The demand curve for a perfectly competitive firm is A) Perfectly elastic (58) If a perfectly competitive firm is producing an output rate at which marginal cost is greater than price, the firm A) should reduce its output level. (59) Calculate the profit in the figure if A = $5, B = $4 and C = 20 A) $ 20 (60) According to the figure below, a firm would be suffering a loss but still be producing if the price is: A) below $5 but above $4. (61) According to the figure below, if the price is $5: A) the firm is making zero economic profits and the market is at long-run equilibrium. (62) Which of the following lists the three main characteristics of a competitive market? A) many buyers and sellers, similar products, easy entry into the market (63) Identify the profit maximizing OUTPUT level in the table. Output MC MR 10 20 15 20 17 15 30 15 15 40 13 15 50 12 15 60 14 15 70 16 15 80 19 15 C) 60 (64) Which answer is consistent with the highest profit? c. Equating marginal revenue with marginal cost (65) In markets characterized by competition we expect to find _______ and _______ compared to a monopoly. a. lower prices; greater output (66) Define efficiency: Doing something at the lowest possible cost. (67) When you get home you throw your jacket over the back of a chair rather than hang the jacket in the closet. Is this potentially efficient? Your Answer: YES (68) ______ and ______ play a crucial role in signaling where to guide resources in markets. a. Entry; exit (69) Where will a firm maximize profits? A) Where MC = MR as long as the price is above the short-run shutdown price. (70) Where will a firm maximize profits in a competitive industry? A) Where the extra revenue received from one more unit is just equal to the extra cost of producing one more unit (71) Which of these reasons best describes why an economist may view losses as desirable in a perfectly competitive market? A) Losses signal that there are too many firms in the industry relative to market demand. (72) Sunk costs: A) are costs that have been incurred as a result of past decisions. (73) What is the best example of someone who doesn’t understand sunk costs? A) A student who laments how poorly they did on the second exam and, as a result, spends less time worrying about the final exam CHAPTER 10 (74) Monopolies are inefficient because they A) produce too much output. B) they can earn excessive long-run profits. C) do not produce where MR = MC. D) none of the above. (75) Which of the following is true about a monopolist MR curve? A) The MR curve lies below the demand curve because the monopolist faces a downward sloping market demand curve. (76) Monopolists A) can make profits or losses, depending on demand conditions (77) A monopolist faces a A) downward-sloping demand curve. (78) According to the accompanying figure, if a firm is producing a quantity of 150 and charging a price of $13 A) the firm should lower production to 100 units and raise the price to $25 to maximize profits. (79) Which of following is NOT a cost of monopoly? A) The monopolist produces too much output compared to perfect competition. (80) Which of the following most accurately describes the economic benefit of issuing a patent? a. An incentive to innovate. (81) Which of the following is the best example of rent seeking? a. Politicians competing to win an election (82) Name three barriers to entry: copyrights, licenses, regulations. CHAPTER 13 (83) Your economics instructor decides to assign a two-student project. We will assume that both students are interested in maximizing their happiness. Your partner Work hard Work less hard You Work hard Grade = A, but you had to work 10 hours. Happiness = 7/10 Grade = A, and you only worked 5 hours. Happiness = 9/10. Grade = A, but you had to work 10 hours. Happiness = 7/10 Grade = A, but you had to work 15 hours. Happiness = 4/10 Work less hard Grade = A, but you had to work 15 hours. Happiness = 4/10 Grade = B, but you only worked 5 hours. Happiness = 6/10. Grade = A, and you only worked 5 hours. Happiness = 9/10. Grade = B, but you only worked 5 hours. Happiness = 6/10. What is your dominant strategy? A. Work less hard (84) Trade agreements encourage countries to curtail tariffs so that goods are able to flow across international boundaries without restrictions. Using the following payoffs determine the Nash equilibrium for these two countries? China Low tariffs High Tariffs United States Low tariffs China gains $50 billion China gains $100 billion U.S. gains $50 billion U.S. gains $10 billion High tariffs China gains $10 billion China gains $25 billion U.S. gains $100 billion U.S. gains $25 billion A. High tariff for the U.S., high tariff for China. (85) Which is the best example of a zero-sum game? A. Playing poker (86) In the prisoner’s dilemma which outcome is the dominant strategy? D. rat out your partner to avoid jail time. (87) A small town has only one pizza place, The Pizza Factory. A small competitor, Perfect Pies, is thinking about entering the market. The profits of these two firms depends on whether Perfect Pies enters the market and whether The Pizza Factory – as a price leader – decides to set a high or low price. Perfect Pies Enter Stay out The Pizza Factory High price Perfect Pies makes $10,000 Perfect Pies makes $0 The Pizza Factory makes $20,000 The Pizza Factory makes $50,000 Low price Perfect Pies loses $10,000 Perfect Pies makes $0 The Pizza Factory makes $10,000 The Pizza Factory makes $25,000 What is the dominant strategy of The Pizza Factory? A. keep its price high (88) What is the dominant strategy in Rock, Paper, Scissors? A. RPS does not have a dominant strategy. (89) Which of the following outcomes is the NASH equilibrium? Freaky Cat Woof Meow Mad Dog Woof 15 -5 5 15 Meow 0 10 -5 10 A. Mad Dog and Freaky Cat both woof (90) Which of the following is the best example of a zero-sum game? A. your laptop gets stolen (91) Which is the best example of an oligopoly? B. Coca-Cola and Pepsi (92) As the owner of a small restaurant should you be more concerned about the cleanliness of your restroom or kitchen? A. The dominant strategy is to clean the restrooms more often than the kitchen. CHAPTER 16 (93) Why is the price of water so much lower than the price of diamonds even though people cannot survive long without water? A) Marginal utility, not total utility, determines how much a person is willing to pay for a good. (94) Which of these statements is true about the utility created in society from consuming meals at fancy restaurants? A) The MU is high. (95) A new restaurant offers an all-you-can-eat buffet for $9.99. What economic concept is this business relying on to earn a profit? A) diminishing marginal utility (96) If a cell phone plan offers you “unlimited calls on nights and weekends” the company is relying on this economic principle to limit use of the phone diminishing utility (97) Jason is trying to decide what to buy Diane for her birthday. Fortunately, Diane has given him the following utility table to work from. Given that Jason has $100 to spend (and he intends on spending all of it on Diane) what combination of goods should he buy her to maximize the amount of utility she gets? Roses $20/dozen Marginal Utility Candy $10/box Marginal Utility 1 40 1 18 2 32 2 16 3 24 3 14 4 11 4 12 5 8 5 10 C) 3 dozen roses and 4 boxes of candy (98) Refer to the following MU table: Mangoes MUm Pineapple MUp 1 20 1 24 2 15 2 18 3 10 3 12 4 5 4 6 You have a budget of $10. Pineapple costs $2 and Mangoes cost $1. How many of each should you buy to maximize total utility? Answer: 4 mangoes and 3 pineapples. (99) Water is essential to life but cheap. Why are diamonds, which are not essential to life, so expensive? A. Diamonds create more marginal utility than water. (100) You and a friend try the burritos at Illegal Pete’s. You give them 15 utils and your friend gives them 10 utils. Circle the best answer below: You like the burritos more than your friend Your friend likes the burritos more than you The friends should have gone to Chipotle You cannot compare utils among friends