ECN 001 EXAM 2 STUDY GUIDE QUESTIONS AND ANSWERS
If a demand curve is relatively more elastic than the supply curve, a tax in the market will - CORRECT
ANSWER✅✅reduce the price received by sellers more than it will raise the price paid by buyers
All else the same, in which of the following circumstances would the deadweight loss from a tax be
largest? - CORRECT ANSWER✅✅both demand and supply are relatively price elastic
If the demand curve is perfectly inelastic then the burden of the tax will - CORRECT ANSWER✅✅be
completely on the buyers of the product.
All else the same, in which of the following circumstances would the tax revenue collected by the
government be the smallest? - CORRECT ANSWER✅✅both demand and supply are relatively price
elastic.
All else the same, if the tax in a market increases then normally - CORRECT ANSWER✅✅the deadweight
loss from the tax will increase.
Suppose a market is currently in equilibrium and the government sets a price ceiling at a price above
equilibrium. Then we can say that - CORRECT ANSWER✅✅the ceiling is non-binding and there will be
no shortage nor surplus.
If the equilibrium price is $20 in a market and the government sets a price floor at $15 then price floor is
- CORRECT ANSWER✅✅non-binding and there is no deadweight loss.
If a price ceiling is binding then we know that there will be - CORRECT ANSWER✅✅a shortage in the
market and no deadweight loss.
If the equilibrium quantity in a market is 50 then with a binding price floor we know that - CORRECT
ANSWER✅✅the quantity bought and sold will be less than 50.
If a price ceiling is set at the equilibrium price in a market then - CORRECT ANSWER✅✅there will be
neither a shortage nor a surplus.
, If a company has zero implicit cost then - CORRECT ANSWER✅✅accounting profit and economic profit
will be the same.
When accounting profit is greater than economic profit we know that - CORRECT ANSWER✅✅implicit
cost must be greater than zero.
If a company experiences an increase in total revenue then all else the same - CORRECT
ANSWER✅✅both accounting and economic profit will increase.
At 10% interest if a company borrows $1000 and uses $1000 from its saving to buy equipment then all
else the same there is - CORRECT ANSWER✅✅explicit costs of $100 and implicit costs of $100.
At 5% interest if a company borrows $20 then we know that all else the same - CORRECT
ANSWER✅✅explicit cost is $1.
At 25% interest is if a company borrows $100 and uses a $100 of saving to buy supplies then all else the
same - CORRECT ANSWER✅✅explicit cost is $25.
A farm produces 20 gallons of milk with 1 worker. Which of the following would be consistent with
diminishing marginal product of labor?
a. 2 workers produce 40 gallons of milk.
b. 2 workers produce 37 gallons of milk.
c. 2 workers produce 45 gallons of milk.
d. 2 workers produce 82 gallons of milk. - CORRECT ANSWER✅✅b. 2 workers produce 37 gallons of
milk.
When a farm has 10 workers it produces 1000 bushels of wheat and with 11 workers it produces 1900
bushels of wheat. Consistent with diminishing marginal product of labor 12 workers might produce -
CORRECT ANSWER✅✅2600 bushels of wheat
If a demand curve is relatively more elastic than the supply curve, a tax in the market will - CORRECT
ANSWER✅✅reduce the price received by sellers more than it will raise the price paid by buyers
All else the same, in which of the following circumstances would the deadweight loss from a tax be
largest? - CORRECT ANSWER✅✅both demand and supply are relatively price elastic
If the demand curve is perfectly inelastic then the burden of the tax will - CORRECT ANSWER✅✅be
completely on the buyers of the product.
All else the same, in which of the following circumstances would the tax revenue collected by the
government be the smallest? - CORRECT ANSWER✅✅both demand and supply are relatively price
elastic.
All else the same, if the tax in a market increases then normally - CORRECT ANSWER✅✅the deadweight
loss from the tax will increase.
Suppose a market is currently in equilibrium and the government sets a price ceiling at a price above
equilibrium. Then we can say that - CORRECT ANSWER✅✅the ceiling is non-binding and there will be
no shortage nor surplus.
If the equilibrium price is $20 in a market and the government sets a price floor at $15 then price floor is
- CORRECT ANSWER✅✅non-binding and there is no deadweight loss.
If a price ceiling is binding then we know that there will be - CORRECT ANSWER✅✅a shortage in the
market and no deadweight loss.
If the equilibrium quantity in a market is 50 then with a binding price floor we know that - CORRECT
ANSWER✅✅the quantity bought and sold will be less than 50.
If a price ceiling is set at the equilibrium price in a market then - CORRECT ANSWER✅✅there will be
neither a shortage nor a surplus.
, If a company has zero implicit cost then - CORRECT ANSWER✅✅accounting profit and economic profit
will be the same.
When accounting profit is greater than economic profit we know that - CORRECT ANSWER✅✅implicit
cost must be greater than zero.
If a company experiences an increase in total revenue then all else the same - CORRECT
ANSWER✅✅both accounting and economic profit will increase.
At 10% interest if a company borrows $1000 and uses $1000 from its saving to buy equipment then all
else the same there is - CORRECT ANSWER✅✅explicit costs of $100 and implicit costs of $100.
At 5% interest if a company borrows $20 then we know that all else the same - CORRECT
ANSWER✅✅explicit cost is $1.
At 25% interest is if a company borrows $100 and uses a $100 of saving to buy supplies then all else the
same - CORRECT ANSWER✅✅explicit cost is $25.
A farm produces 20 gallons of milk with 1 worker. Which of the following would be consistent with
diminishing marginal product of labor?
a. 2 workers produce 40 gallons of milk.
b. 2 workers produce 37 gallons of milk.
c. 2 workers produce 45 gallons of milk.
d. 2 workers produce 82 gallons of milk. - CORRECT ANSWER✅✅b. 2 workers produce 37 gallons of
milk.
When a farm has 10 workers it produces 1000 bushels of wheat and with 11 workers it produces 1900
bushels of wheat. Consistent with diminishing marginal product of labor 12 workers might produce -
CORRECT ANSWER✅✅2600 bushels of wheat
