Econ Exam 2

  1. The price elasticity of demand measures...

    B) The responsiveness of quantity demanded to changes in price
  2. Doug wants to start up his own business and needs $25,000 to get it off the ground. He can either withdraw it from his savings account, where he currently earns 3%, or he can take out a loan for $25,000 and pay 5% interest. Doug should compare:

    B) The implicit cost of $750 to the explicit cost of $1,250 and choose to use his savings
  3. When a person's income increases,

    C) more bundles of goods and services become affordable
  4. Given the marginal-utility-to-price ration equalization principle, MU1/P1=MU2/P2. What will happen if P1 decreases?

    B) the consumer should consume more of good 1 and less of good 2
  5. After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the..

    B) marginal utility is positive for the fourth slice and negative for the fifth slice
  6. Hideki attends baseball games and goesto movie theaters. Assume that baseball and movie tickets are normal goods. After the price of baseball tickets goes up, which of the following is correct?

    D) The quantity of baseball tickets that Hideki consume will decrease
  7. According to the law of diminishing marginal returns, 

    D) the additional output generated by additional units of an input will diminish
  8. In a two-nation world, comparative advantage in the production of a particular product means that one nation can produce:

    C) the product at a lower domestic opportunity cost than the other nation
  9. France and Italy can produce two goods, fish (F) and chicken (C). The cost ratios for two goods are constant and given by France: 1F=2C and Italy: 1F=4C. If these two countries specialize based on comparative advantage, 

    C) Italy will produce chicken and France will catch fish
  10. Suppose the government has decided to impose a tax on sellers. Which of the following is correct?

    C) If supply were less elastic, the tax revenue would be larger
  11. The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by 

    D) 7% and quantity supplied rises by 5%
  12. Which of the Statement is correct?

    D) When MP is higher than AP, AP is increasing. When MP is less than AP, AP is decreasing
  13. Mary's income increases by 10% and her demand for books decreases by 5%, all else constant. Mary's income elasticity of demand for books is _____. Thus, books are a/an _____ good and _____ for Mary.

    D) -0.5, inferior, a necessity
  14. Maggie decides to become a full-time fashion blogger and quits her job. Her previous job paid her $45,000 a year. SHe spent $10,000 buying a camera and fashion apparel. She earns $80,000 in her first year as a blogger. What is Maggie's economic profit as a blogger?

    C) $25,000
  15. Suppose a firm's marginal product of labor of producing the 3rd unit of a good is equal to 2. Additionally, suppose a firm pays its workers $10. What is the firm's marginal cost of producing the 3rd unit?

    B) $5
  16. Assume that we know that the cross elasticity of demand between goods A and B is 0.5. If the price of B increases, the demand for A ____ because A and B are ____

    D) Increases, substitutes
  17. Which of the following makes supply more elastic?

    B) The producer has little time to respond to price changes
  18. The long-run average total cost curve:

    D) is based on the assumption that all resources are variable
  19. At a price of $10, the quantity demanded of wine is 1,250 bottles. When the price increases to $30, the quantity demanded of wine is 750 bottles. The price elasticity of demand for wine is:

    B) -1/2, and demand is inelastic
  20. Do we expect to observe the law of diminishing returns in the short run or long run? Why?

    D) We observe diminishing returns in the short run, because there is sufficient time for inputs to alter in the long run
  21. Why is the minimum efficient scale important for a firm's decision making?

    B) Minimum efficient scale denotes the point where long-run average costs are minimized
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    Consider the diagram below. Suppose the World price of coffee is $2 per pound. What is the quantity of coffee imports for the U.S. (in millions of pounds)?

    A) 200
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    What is the increase in economic surplus from autarky to free trade?

    B) 200
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    If the world price of the product is $6 and a tariff of $1 per unit imported is imposed, then the quantity of output that would be supplied domestically would be

    A) 1,600 units, and the quantity of output that would be imported would be 400 units
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    What is the total variable cost of producing 4 units?

    B) $22
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    Which of the following is correct?

    C) Average variable cost is $8 when 6 units are produced
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    Suppose the country is originally in autarky. Please note that the world price is $5 and that S and D represents domestic supply and demand. What is the transfer from producer surplus to consumer surplus if imports are allowed?

    A) C+D
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    Chile and Argentina each have 600 workers available. The table shows how many workers it takes to produce grapes and how many workers it takes to produce beef in each country. Argentina has ___.

    C) a comparative advantage in grapes
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    Suppose in autarky, Chile produces 75 tons of grapes and 150 tons of beef and Argentina produced 100 tons of grapes and 75 tons of beef. After specialization and trade, Chile trades 100 tons of beef to Argentina for 100 tons of grapes. Which of the following is true?

    C) Argentina will gain 25 tons of beef
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    Which of the following terms of trade would make trade beneficial for both Chile and Argentina?

    B) 1 ton of grapes for 1 ton of beef
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    The price of an apple is $1; the price of a banana is $2. You have $4 to spend. What is the optimal consumption of apples and bananas?

    B) 2 apples and 1 banana
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    The price of an apple is $1; the price of the banana is $1 and you have $4 to spend. What is the optimal consumption?

    C) 2 apples and 2 bananas
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    An increase in the quantity of product X demanded from 14,000 to 16,000 units implies that the price of product X was...

    C) reduced and the demand is inelastic
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    In the picture below, curve ___ represents the Average Variable Cost curve and curve ___ represents and the Marginal Cost curve.

    D) 3,1
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    The below supply curve is:

    A) Perfectly Elastic
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    Which of the following graphs is implying the law of diminishing marginal utility? (Numbers next to each curve represent total utility)
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    Suppose the price decreases from $8 to $4. Calculate the price elasticity of demand using the midpoint formula.

    A) -1
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    The table below shows Bob's total utility from consuming slices of pizza. What is the marginal utility of Bob's 4th slice of pizza?

    A) 7
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    Based on the table, which of the following is correct?

    D) Diminishing marginal returns set in with the addition of the third unit of input
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    What is the marginal product of labor when labor input is 4?

    C) 1
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