Practice Exam 2 FS2020 - study guide for microeconomics 1014 with answers and test questions. PDF

Preview

Summary

study guide for microeconomics 1014 with answers and test questions....

Description

Name: ___________________ Student #_____________ Pawprint ___________

MICROECONOMICS 1014 EXAM 2 10/21/2020

VERSION: 178 • Please do not open the exam until you are told to. • Fill in NAME, STUDENT ID and PAWPRINT on top of this cover sheet and the scantron sheet. Fill in all answers on your scantron. No answers will be accepted unless they are marked on the scantron. • Only pencils, erasers, one double-sided 8.5 x 11 cheat sheet, and a non-graphic calculator are allowed in this exam. No other devices are allowed. You cannot use your cell phone as the calculator.

Tear this cover sheet off and turn it in with your scantron to the proctor after completing your exam! You can keep the exam questions for your own record.

TWAG!!

Version: 178

1. If the market outcome results in a situation where the marginal social benefits of a good’s consumption are greater than the marginal social costs of its production, then: A) a negative externality is present. B) no net externality is present. C) any externality has already been internalized. D) a positive externality is present. 2.

(Figure: Market for Bathroom Cleaner) Refer to the figure. The figure shows a market for cans of a bathroom cleaner that causes environmental damage, imposing costs on people other than the consumers and producers of the cleaner. What is the efficient quantity in this market?

A) B) C) D)

6 75 90 12

3. Table: Keyboards Price (per unit in Quantity Demanded of Quantity Supplied of dollars) Keyboards (Domestic) Keyboards (Domestic) $50.00 1,000 1,800 $45.00 1,200 1,600 $40.00 1,500 1,400 $35.00 1,700 1,100 $30.00 2,100 900 If the domestic economy in this table opens up to international trade at the world price of $40.00 per keyboard, this economy will: A) import 100 keyboards. B) export 200 keyboards. C) export 100 keyboards. D) import 200 keyboards. Page 1

4. Devin is an attorney at a corporate law firm where he makes a yearly salary of $125,000. He is considering quitting his job and opening his own legal practice where he expects to earn revenues of $230,000 per year once he gets established. To run his own firm, he would need an office and a law clerk. He has found a suitable office, which rents for $50,000 per year. A law clerk could be hired for $40,000 per year. Other miscellaneous costs total to $30,000 per year. Assuming that these figures are accurate, what is Devin’s yearly accounting profit or loss? A) $170,000 B) $235,000 C) $110,000 D) -$15,000 5. (Figure: International Trade 1) Refer to the figure. Will the domestic market import or export? How many units will the domestic market import or export?

A) B) C) D)

Import; 12 units Export; 12 units Export; 6 units Import; 6 units

6. Governments with centrally-planned economies such as the former Soviet Union, Cuba, and North Korea tend to have trouble implementing their economic policies. Why is this the case? A) Central planners are usually too benevolent to make the tough allocation choices necessary to grow an economy. B) A small number of political dissidents perform acts of sabotage that hinder effective implementation. C) These countries are unable to acquire computers that can quickly solve complicated economic models due to sanctions. D) Central planners have no way of knowing the value of a particular resource in all of its uses.

Page 2

7. A market is considered perfectly competitive if: I. there is a lot of product differentiation among sellers. II. there are many sellers, each small relative to the total market. III. the product sold is similar across sellers. IV. there are only a few buyers. A) II and III only B) I and II only C) II, III, and IV only D) I, II, and III only

8. For an efficient equilibrium, the Coase theorem does NOT require that: A) the government sets a Pigouvian tax equal to the external cost. B) private bargains are possible. C) transaction costs are low. D) property rights are clearly defined. 9. The Invisible Hand Property 2 suggests that: A) Long-run profits across competitive industries will be identical. B) unprofitable industries will grow at the expense of other more profitable industries. C) capital and labor can move only within a given industry. D) Long-run profits across competitive industries will be different.

10. If price controls are so harmful, why would a country ever impose them? A) Governments use price controls to generate revenue. B) Constituents normally associate price controls with being helpful rather than harmful, so politicians have an incentive to institute them. C) Political leaders are often irrational and make decisions that are not in their own best interest. D) Price controls are effective at mitigating supply-side shocks.

Page 3

11. (Table: ABC & XYZ) Refer to the table. What market price would induce the firms to produce 12 units of total output?

A) B) C) D)

$24 $45 $20 $30

12. (Figure: Profit Maximizing Output) Use the figure. The short-run profit-maximizing output for this firm is ________. The loss of this firm is ________.

A) B) C) D)

6; $15 9; $15 6; $30 9; $30

Page 4

13. Which of the following best explains why governments implement protectionist policies like tariffs and quotas? A) Governments have seen data suggesting that they have a great track record of picking winners and can improve on long-term economic performance by interfering with the market. B) There is strong empirical evidence that trying to divide the economic pie in your country’s favor is typically successful. C) Lobbying groups benefitting from the policies spend lots of resources getting them implemented, while those harmed by the policies are many and spread out and lack the incentives to fight the policies. D) Protectionist policies increase the number of jobs in the economy, as the protected products are produced at home rather than abroad. 14. Which of the following statements about monopoly power is correct? A) Monopoly power is generated only by governments. B) Firms attaining monopoly power always set the price at the marginal cost. C) Monopoly power is the power to raise prices above average cost without facing new entry of firms. D) Monopoly power is the power attained solely by dual firm monopolists. 15. Suppose Maria buys a silver futures contract from Brad that gives Maria the right to buy 1,000 ounces of silver at $50 per ounce to be delivered by Brad 30 months in the future. Assume that on the delivery date the market price of silver has increased to $55 per ounce. If the parties agree to a cash settlement, what transaction will occur? A) Maria will receive $5,000 from Brad in exchange for settling the contract. B) Brad will pay $50,000 to Maria in exchange for the 1,000 ounces of silver. Brad will then sell the silver on the market for $55,000. C) Maria will pay $50,000 to Brad in exchange for the 1,000 ounces of silver. Maria will then sell the silver on the market for $55,000. D) Brad will receive $5,000 from Maria in exchange for settling the contract.

Page 5

16. (Figure: Price Controls) Refer to the figure. If the government imposes a price ceiling in this market at a price of $7, the result would be:

A) B) C) D)

a shortage of 100 units. a surplus of 100 units. nothing; this price ceiling is non-binding a shortage of 50 units.

17. (Figure: Deadweight Loss) Refer to the figure. Deadweight loss caused by monopoly pricing is represented by the area:

A) B) C) D)

acdf. def. abd. bcdf.

Page 6

18. (Figure: Market with External Cost) Suppose the figure displays the demand and supply curves for dry cleaning, a service that creates pollution. The external cost of dry cleaning is:

A) B) C) D)

P1 – P0. P 0. P2 – P0. P 2.

19. (Figure: Foreign Trade) Refer to the figure. In a free-trade environment, how many units will be produced domestically and how many units will be consumed domestically?

A) B) C) D)

1,000 units; 1,600 units 700 units; 1,000 units 1,000 units; 1,000 units 700 units; 1,600 units Page 7

20. (Figure: Maximum Willingness to Pay) Refer to the figure. What is the profitmaximizing quantity for this monopolist?

A) B) C) D)

110 100 75 125

21. As the result of your job as a government contractor, you learn before the rest of the American public that the United States Air Force launched an air strike that killed Qasem Soleimani, a high-ranking Iranian military commander. Upon learning this information, you conclude that this action will likely lead to another war in the Middle East, which will decrease the supply of oil. Ignoring any anti-insider trading laws, you can profit by: A) buying oil futures because the reduced oil supply will decrease the price of oil. B) speculating randomly. C) doing nothing; oil prices already reflect this information. D) buying oil futures because the reduced oil supply will raise the price of oil.

Page 8

22. (Figure: Minimum Wage) According to the figure, at a minimum wage of $10, firms are willing to hire ________ workers. This policy results in ________ unemployed workers.

A) B) C) D)

140; 60 170; 30 110; 60 110; 30

23. Which of the following statements is TRUE? I. The deadweight loss from a monopoly refers to the loss in consumer surplus that is captured by the monopolist as profit. II. According to theory, if the government sets a natural monopolist's price equal to marginal cost, the socially optimum quantity of output will result. III. If the government sets a natural monopolist's price equal to marginal cost, the monopolist will always earn a profit. A) I and III only B) I, II, and III C) II only D) I only

24. A bag of sugar can be used to produce both chocolate and caramel. If the price of chocolate falls, the supply of caramel ________ and caramel prices ________. A) decreases; decrease B) decreases; increase C) increases; increase D) increases; decrease

Page 9

25. (Figure: Trade) Refer to the figure. The deadweight loss (lost gains from trade + value of wasted resources) in this market caused by the tariff equals:

A) B) C) D)

$10,000 There is no deadweight loss. $5,000 $15,000

26. (Figure: Tax on Sellers) The following figure refers to the market for corn. Suppose the imposition of a per-unit tax on the sellers of corn shifts the supply curve from S0 to S1. With the tax: the buyers pay ________, the sellers receive ________, and the quantity traded is ________.

A) B) C) D)

$2; $5; 12 $3; $2; 6 $3; $3; 6 $5; $2; 12

Page 10

27. (Figure: Supply and Demand with Subsidy) The figure depicts a market with a per-unit subsidy. What is the deadweight loss caused by the subsidy?

A) B) C) D)

$2,000 $800 $500 $400

28. (Figure: World Market for Maple Syrup) Refer to the figure. If you are one of literally thousands of maple syrup producers and you wanted to increase your maple syrup production from 100 gallons to 110 gallons, what price can you charge for your maple syrup after increasing production?

A) B) C) D)

$10 $96 $100 $110

Page 11

29. If the price of snow shovels in an area suddenly skyrockets due to the National Oceanic and Atmospheric Administration (NOAA) warning residents of an upcoming blizzard, then snow shovel suppliers will: A) limit the supply of snow shovels in the area to sustain the skyrocketing price. B) ship more snow shovels to the area, and the price will fall. C) ask retailers to lower their snow shovel prices. D) enjoy long-term high profits at the expense of consumers. 30. Suppose that you are counseling a member of the Missouri Senate on the effects of a new proposed tax. The tax in question is a $0.45 Pigouvian tax on cigarettes. The Senator (who didn't pay close attention in economics class) suggests that the tax should be levyed on cigarette producers to pay for the negative health effects associated with smoking. You (as a well-learned economist) know that the demand curve for cigarettes is relatively more inelastic (less elastic) than the supply curve. If this policy is implemented, who would bear most of the burden of the tax? A) neither the buyer nor the seller will bear the burden of the tax. B) buyers will bear most of the burden of the tax. C) sellers will bear most of the burden of the tax D) the burden of the tax will be shared equally between buyers and sellers.

Page 12

Answer Key 1. D 2. B 3. A 4. C 5. C 6. D 7. A 8. A 9. A 10. B 11. D 12. C 13. C 14. C 15. A 16. A 17. B 18. C 19. D 20. A 21. D 22. C 23. C 24. D 25. C 26. D 27. D 28. B 29. B 30. B

Page 13...