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1. The law of demand tells us thata. the lower the price of a good, the lower will be the demand for that good.b. the higher the price of a good, the lower will be the quantity demanded of that good.c. the lower the price of a good, the higher will be the quantity demanded of that good.d. both b. and c.e. none of the above2. If you are currently answering questions at a speed such that the marginal benefits of speed are equal to the marginal costs of speed, then a. You should speed up, because otherwise you might run out of timeb. You should slow down because otherwise you might get tired before the end of the examc. No other speed will yield higher net benefitsd. You should go faster because you have nothing to lose by doing soe. Both (b) and (d) are correct3. Ceteris paribus, an decrease in the your income will causea. Demand for a normal good to fallb. Demand for a normal good to risec. Demand for an inferior good to rised. The price of a good to risee. Both a. and c. are correct4. The area under an individual consumer’s demand curve, from Q = 0 to Q = Q* = the last unit being consumed, measuresa. marginal cost of the last unit being consumedb. marginal benefit of the last unit being consumedc. total cost of consuming Q* unitsd. total benefits of consuming Q* unitse. net benefits of consuming Q* unitsQuestions 5 – 8 are based on the following graph: 5. Assume this graph shows a market equilibrium that maximizes gains from trade. What is the price and quantity if this is true?a. P3, Q1b. P2, Q2c. P1, Q3d. P1, Q1e. P3, Q36. Again, assume the graph shows a market in a gains from trade maximizing equilibrium. What area represents consumer surplus?a. A + B + C + D + E + Fb. A + B + C + D + Ec. A + B + Cd. D + E + Fe. None of the above7. Now, suppose the government imposes a price ceiling and this price ceiling changes price, quantity demanded, and quantity supplied. The price ceiling is shown on the graph (hint: based on the info given in the question, you must figure if the price ceiling is P1, P2, or P3). What is the consumer surplus when the price ceiling is instated (assume the price ceiling is strictly enforced)?a. A + B + C + D + E + Fb. A + B + C + D + Ec. A + B + Dd. B + D + Fe. F8. Using the graph above, what is the dead-weight-loss when the price ceiling from above is in effect?a. A + B + Cb. D + E + Fc. C + Ed. Ne. A + B + D + FQuestions 9 – 12 are based on the following information. Every Thanksgiving, I drive halfway across the country to visit my family. When I do so, I must choose the average speed at which I drive; the table below shows the marginal benefits and marginal costs of driving at various speeds. All benefits and costs are measured in dollars, for convenience, but all of the relevant costs and benefits are taken into account. Also, for convenience in computing, assume average speeds come only in 10-mile-per-hour (mph) increments; thus, I can average 50 mph or 60 mph, but not 57 mph.Average speed (mph) Marginal benefits Marginal costs10 $1000 $ 5020 950 15030 900 25040 850 35050 800 45060 750 55070 700 65080 650 75090 600 8509. Given the information in the table above, what are the total costs of my trip if I average 30 mph?a. 250b. 450c. 650d. 2400e. None of the above10. Given the information in the table above, at what average speed should I drive?a. 40b. 60c. 70d. 80e. 90 or more, because benefits are still positive at 9011. Given the information in the table above, what must be true about the net benefits of averaging 100 mph, compared to not taking the trip at all (i.e., averaging 0 mph)?a. Greater than 0b. Greater than $3150c. Less than 0d. Less than $3150e. None of the above12. Suppose that I must choose between an average speed of 50mph and an average speed of 90 mph, and these are the only two options. Which speed should I pick?a. 50 mphb. 90 mphc. I would be exactly indifferent between these two optionsd. Depending on my preferences, I might sensibly select eithere. None of the aboveQuestions 13 – 15 are based on the following information:(i) Barley is an important input used in the production of beer.(ii) The demand for beer is inelastic(iii) The supply of beer is elasticBeginning from an initial equilibrium, suddenly the price of barley rises.13. The result of this increase in the price of barley will be:a. a reduction in the supply of beerb. an increase in the supply of beerc. an increase in the demand for beerd. a reduction in the demand for beere. both (a) and (d) are correct14. Thus, as a result of the increase in the price of barley, we can expect thata. total consumer spending on beer will riseb. total consumer spending on beer will fallc. total revenues of beer makers will rised. both (a) and (c) are correcte. none of the above15. Moreover, we can also expect that this rise in the price of barley will causea. consumer surplus (in the beer market) to riseb. gains from trade (in the beer market) to risec. gains from trade (in the beer market) to falld. both (a) and (b) are correcte. more drunks on Clemson’s campus after their economics finals are overThe following three questions are based on this information: Consider the nations of England and Ireland. Each is capable of producing fish and chips. If Ireland spends all of its time on fish it can produce a maximum of 10 units a day, leaving it no time for chip production. Or, if it spends all of its time on chips, it can produce 5 of them in a day, leaving no time for fish production. Ireland is also capable of producing any linear combination of these. England is capable of daily production of at most 20 fish (and no chips) if it specializes completely in fish, or a maximum of 20 chips (and no fish) if it produces only chips. As with Ireland, it is able to produce any linear combination of these extremes. For simplicity, assume that Ireland and England can use their time only for producing these two goods.16. Who is the low cost producer of chips?a. Ireland, because it can produce the least of themb. England, because it can produce the most of themc. England, because it must sacrifice only one fish to make a chip.d. Ireland, because it must sacrifice only 0.5 chips to make a fish.e. Neither, because they both have the same cost of producing chips.17. Who has a comparative advantage in producing fish?a. Ireland, because it can produce the most of themb. England, because it can produce the most of themc. Ireland, because it must sacrifice only 0.5 chips to make a fishd. England, because it is the low cost producer of fish.e. none of the above18. Suppose the world price of fish is $10 each and the world price of chips is $15 each. If each nation’s objective is to collect as much revenue as possible, how will they each organize production?a. Ireland will specialize completely in chips and England will specialize completely in fishb. Ireland will specialize completely in fish and England will specialize completely in chipsc. both will produce only chipsd. both will each make 5 fish and England will spend the rest of is time making chipse. each nation will divide its time in the ratio 1.5 to 1 in favor of chips, because this is the ratio of the prices.19. If the cross price elasticity of demand between widgets and kumquats is -2.0, one can conclude thata. widgets and kumquats are substitutes and a rise in the price of one will cause an increase in the demand for the otherb. widgets and kumquats are complements and a rise in the price of one will cause an increase in the demand for the otherc. widgets and kumquats are substitutes and a rise in the price of one will cause a decrease in the demand for the otherd. widgets and kumquats are complements and a rise in the price of one will cause a decrease in the demand for the othere. none of the above20. When we say that Poland has a comparative advantage in producing sausages, we mean that Italy a. can produce more sausages than beer, the only other commodity produced there b. is the low cost producer of sausages c. can produce more sausages than can any other country d. can produce nothing but sausages e. both (b) and (c) are correct 21. If the income elasticity of demand for kumquats is 0 (yes, “zero”), a rise in the incomes of kumquat consumers will lead toa. a rise in the equilibrium price and quantity of kumquatsb. a fall in the equilibrium price and quantity of kumquatsc. a rise in the equilibrium price of kumquats, but a fall in the equilibrium quantityd. a fall in the equilibrium price of kumquats, but a rise in the equilibrium quantitye. no change in the equilibrium price or quantity of kumquats22. If the demand for corn is elastic, a reduction in the supply of corn will causea. a reduction in expenditures on cornb. a reduction in expenditures on corn only if the supply of corn is elasticc. a change in expenditures on corn that may be positive or negative, depending on the elasticity of supply of cornd. an increase in expenditures on corn only if the supply of corn is inelastice. an increase in expenditures on cornQuestions 23-25 are based on the following information:All flimflams are made in either Japan or Korea. Americans are the sole purchasers of these flimflams, andthey do not care whether they buy flimflams made in Korea or those made in Japan. Assume an outbreak ofJapanese flu kills many of the highly skilled Japanese workers who produce flimflams. Korean workers areunaffected, because no workers ever move or travel between Korea and Japan. (Hint: What effect will this flu have on wages, and thus production costs, in Japan?)Let the price of flimflams be P and the total quantity of them be Q; let the amount produced in Korea be Qkand the amount produced in Japan be Qj. Suppose you observe the following changes as a result of this episode:%ΔQ = -40%%ΔQk = +25%%ΔQj = -50%%ΔP = +20%23. Given these observations, what is the elasticity of the demand for flimflams?a. -1.5b. -2c. -1d. -0.5e. It cannot be determined, because the demand for flimflams shifts in this problem24. Given these observations, what is the elasticity of the Japanese supply of flimflams?a. -1b. +1c. +0.5d. +2e. It cannot be determined, because the Japanese supply curve shifts in this problem25. Given these observations, what is the elasticity of the Korean supply of flimflams.a. +1.25b. +2.5c. -2.0d. +0.8e. It cannot be determined, because the Korean supply curve shifts in this problem. 26. The figure above shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators. What is the firm’s economic profit in the long run is 2) _______ a. $900. b. $600. c. zero. d. $2,400. e. $1,20027. For a firm in perfect competition, the marginal cost curve intersects the average total cost curve a. at no point. b. at the minimum average total cost. c. to the left of the minimum average total cost. d. to the right of the minimum average total cost. e. above the average total cost curve 28. In the above graph, the intersection of curve A and curve C is thea. Shutdown pointb. Long-run equilibrium price and quantityc. Point where the producer is indifferent between producing and shutting downd. profit-maximizing price and quantitye. Both (A) and (C) are correct29. In the above graph, the average fixed cost curve is:a. Labeled Bb. Labeled Cc. Not shownd. Responsible for the distance between curves B and C getting smaller as quantity increasese. Both C and D30. An example of a negative consumption externality is:a. Honey production and orange productionb. Flu vaccinationsc. Pollutiond. Loud partiese. Beautiful architecture that was privately funded 31. In the figure above, if the market is unregulated, the price will be a. $250 per unit. b. $150 per unit. c. $200 per unit. d. $100 per unit. e. Depends on if the producer is a price taker or a price searcher32. Total cost is the sum of fixed costs and a. implicit costs. b. explicit costs. c. accounting costs. d. variable costs. e. marginal costs33. A period of time in which the quantity of at least one resource used by a firm is fixed is calleda. the market period.b. the intermediate run.c. the short run.d. the long run.e. the chicken run 34. Consider the perfectly competitive firm in the above figure. If price equals 10, what will the firm choose to do in the short run and why?a. Shut down because the firm incurs an economic loss.b. Stay in business because the firm is making an economic profit.c. Stay in business because the firm’s economic loss is less than fixed costs.d. Stay in business because it is earning a normal profit (that is, zero economic profit or loss).e. Shut down because the price is below the firms shutdown point.35. A firm in perfect competition maximizes its profit by producing the output at which its marginal cost equals its a. marginal revenue. b. average fixed cost. c. average variable cost. d. price. e. Both a. and d. are correct. 36. In the above figure, the total fixed cost curve is curve a. A. b. B. c. C. d. D. e. not shown. 37. In the above figure, curve D slopes downward because a. there are diminishing returns to capital and labor. b. average fixed cost decreases as output increases. c. marginal cost decreases as output increases. d. all costs decrease as output increases. e. demand is downward sloping. 38. Suppose demand for a product produced in a perfectly competitive market permanently decreases. In the long run, the price a. does not change because entry increases the supply of the product. b. does not change because price cannot exceed average total cost in perfect competition. c. does not change because exit decreases the supply of the product. d. rises and each firm produces more output. e. falls and each firm produces less output. 39. The above figure shows the demand and supply curves for housing in City A. As a result of a rent ceiling at $500, the deadweight loss is represented by the area a. triangle gfe. b. rectangle feag. c. triangle acb.d. triangle eca.e. none of the above 40. The minimum wage is an example of a a. price floor. b. price ceiling. c. quota. d. tax.e. subsidy. 41. The government imposes a sales tax on hot dogs. The tax would be paid entirely by hot dog sellers if the a. demand is perfectly inelastic. b. supply is perfectly elastic.c. demand is perfectly elastic. d. supply is perfectly inelastic. e. both c. and d. are correct42. It is easier for a monopolist to price discriminate between groups for a service than for a tangible product because a. it is easier to calculate average willingness to pay for services. b. it is easier for consumers to resell products than services. c. it is easier to distinguish between groups of customers for services than customers for products.d. people care less about services than products e. customers for products usually do not differ with respect to their average willingness to pay. 43. Monopolies earn an economic profit in the long run because there are a. free entry and exit. b. barriers to entry. c. inelastic consumers. d. close substitutes for the product.e. a large number of competing firms. 44. Which of the following is true regarding the long run for a firm in monopolistic competition? a. ATC = MC = MR b. P = MC = ATC c. P = MC = MRd. AVC = MC = MR e. P = ATC 45. If two duopolists can collude successfully, then both will a. price at marginal cost. b. earn greater profits than if they did not collude. c. price below average total cost.d. set price equal to marginal revenue e. lower their economic profits. 46. Which of the following statements is FALSE concerning monopolistic competition? a. There are no barriers to entry. b. Firms sell a differentiated product. c. There are many firms. d. Firms do not produce at the minimum of their average total cost.e. Monopolistically competitive firms are price takers because of product differentiation. Player A Confess Don’t confessPlayer B Confess A: 3 yearsB: 3 years A: 10 yearsB: 1 year Don’t confess A: 1 yearB: 10 years A: 2 yearsB: 2 years47. The problem for the prisoners in the prisoners’ dilemma game in the above table is that a. neither prisoner has a workable strategy. b. there is no equilibrium outcome. c. neither player considers the actions of the otherd. the Nash equilibrium is not the best outcome. e. all of the above Quantity (millions of students per year) Marginal private benefit (thousands ofdollars per student per year) Marginal social benefit (thousands of dollars per student per year) Marginal private cost (thousands of dollars per student per year)4 20 28 88 18 25 1012 16 22 1216 14 19 1420 12 16 1624 10 13 1848. The table above shows marginal costs and benefits of college education. If the market for college education is perfectly competitive and efficiently regulated (so there is not deadweight loss in this industry), what is the price of college education? a. $16,000 per year b. $8,000 per year c. $10,000 per yeard. $14,000 per year e. $12,000 per year 49. The benefit from an additional unit of a good or service that people other than the consumer of that good or service receives is the a. opportunity cost. b. marginal social benefit. c. marginal external benefit. d. marginal private benefit. e. gains from trade. 50. The above figure shows the marginal benefits and marginal costs of a college education. If society’s external benefit from college graduates is $5,000 each, then the efficient number of students is a. 5 millionb. 10 million. c. 25 million. d. 15 million. e. 0. 51. A free rider is someone who a. pays the dollar value that she places on a given level of provision of a public good. b. pays for a good and then does not consume the good. c. pays for a good and then consumes the goodd. pays less than the maximum amount that he or she is willing to pay for one more unit of the good. e. consumes a good without paying for it. 52. Which of the following is the BEST example of a public good? a. a can of Mountain Dew b. an extra large pizzac. national defense d. cable television e. fish in the ocean
