Question 1

Which of the following events would NOT cause a nation's production possibility curve to shift outward?

Accepted Answer

A fall in the unemployment rate of nurses.

Question 2

Fred paid $$75 for a football game ticket, 20 $$for parking, and $$10 for dinner. He also missed 4 hours of work at 10/$$hour. What is Fred’s opportunity cost of going to the game?

Accepted Answer

$135

Question 3

Which of the following will NOT cause a shift in the demand curve for a good or service?

Accepted Answer

In the market for hair stylings, the price of hair stylings falls.

Question 4

Suppose producers can switch between making tablet computers and smart phones. If demand for tablet computers increases, what is the likely effect?

Accepted Answer

An increase in the quantity supplied of tablet computers and a decrease in the supply of smart phones.

Question 5

If the price of gasoline increases, what is the most likely effect on the market for Sport Utility Vehicles (SUVs)?

Accepted Answer

The demand for SUVs will decrease, that is, shift to the left.

Question 6

After hurricanes damage Florida’s citrus crop, California citrus products reach record prices. Which statement best explains this?

Accepted Answer

The supply of Florida oranges decreased, causing their price to increase, which then increased the demand for substitute California oranges.

Question 7

If a price floor for wheat is set at $$4.00 per bushel when the equilibrium price is 2.50 $$per bushel, what will result?

Accepted Answer

An increase in the quantity supplied, and a decrease in the quantity demanded, leading to a surplus of wheat.

Question 8

If the government imposes a price ceiling of $$3.00 per gallon on gasoline when the market price is 4.25$$, what is the likely outcome?

Accepted Answer

Quantity demanded will exceed quantity supplied so there will be a shortage of gasoline in the US market.

Question 9

Suppose the quantity of root beer demanded falls from 100,000 to 80,000 gallons per week as price rises from $$1.00 to 1.10 $$per gallon. What is the price elasticity of demand (without the negative sign)?

Use the midpoint formula:
$$
	ext{Elasticity} = \frac{(Q_2$ - Q_1$)/[(Q_2$ + Q_1$)/2]}{(P_2$ - P_1$)/[(P_2$ + P_1$)/2]}
$$

Accepted Answer

2.33

Question 10

At an output of $$Q = 30$$, the average total cost (ATC) of a firm is $$100, and its average fixed cost (AFC) is 40. $$What is this firm's total variable cost (TVC) at this output?

Recall:
$$
ATC = \frac{TC}{Q}, \quad AFC = \frac{TFC}{Q}, \quad AVC = ATC - AFC, \quad TVC = AVC 	imes Q
$$

Accepted Answer

$1,800

Question 11

Ernie's Earmuffs produces 200 earmuffs per year at a total cost of $$2,000 (400 $$fixed). If he increases output to 220 earmuffs, total cost rises to $$2,100 (fixed cost unchanged). What is Ernie's marginal cost per earmuff between 200 and 220?

Recall:

MC$$ = \frac{\Delta TC}{\Delta Q}
$

Accepted Answer

$5

Question 12

A competitive firm’s marginal cost (MC) is $$9, market price is 7$$, and minimum average variable cost is $5. What should the firm do to maximize profit?

Accepted Answer

The firm should decrease its output to the point at which the MC is $7.

Question 13

Given the following cost table for a perfectly competitive firm:

Output: 0, 1, 2, 3, 4, 5, 6
Total Cost: $$25, 49$$, $$69, 91$$, $$118, 148$$, $$180

If the market price is 30$$, what is the profit-maximizing output?

Accepted Answer

5 units of output, because at that output MC = MR = $30

Question 14

Foxon has a monopoly in a specialized chip market. At output 500 units, price is $$200, ATC is 150$$, and both MC and MR are $120. Which statement is correct?

Accepted Answer

The firm has total costs of $60,000

Question 15

A pharmaceutical firm is the sole producer of a patented drug. When the patent expires and the market becomes competitive, what will happen?

Accepted Answer

The price of the drug will fall, the quantity sold in the market will increase and the total surplus (consumer surplus plus producer surplus) will also increase.

Question 16

Negative externalities, such as pollution, are costs imposed on others not involved in the transaction. In a competitive market:

Accepted Answer

Decision makers in the market fail to take into account the negative external effects of their behavior, and the competitive market output is NOT efficient.

Question 17

Suppose the marginal private benefit of flu vaccination is given by $$MB = D$$, and there is a positive externality of $$2 per vaccination so $$that the marginal social benefit curve is $$MSB. $$The marginal cost and supply is $$MSC = S. To $$achieve the efficient level of vaccinations, the government should:

Accepted Answer

Offer a subsidy of $2 per unit.

Question 18

Suppose Brazil and Chile have the following production possibilities for corn and outfits. If Brazil has a comparative advantage in outfits and Chile in corn, what is the implication for trade?

Accepted Answer

Brazil has a comparative advantage in Outfits and Chile has a comparative advantage in Corn and there would be gains from trade if Brazil specialized in producing Outfits and Chile specialized in producing Corn.

Question 19

A key difference between tariffs and quotas is:

Accepted Answer

The government receives revenue with tariffs, but the importer receives the added revenue with quotas.

Question 20

If the United States imposes a tariff on cars imported from Japan, what is the most likely effect?

Accepted Answer

US producers gain, but the total surplus falls, as the decrease in consumer surplus is more than the gain in producers surplus, and the government tariff revenue combined.

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