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EC120 introduction to microeconomics Midterm 2 Fall 2012.docx

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Department
Economics
Course
EC120
Professor
Peter Sinclair
Semester
Fall

Description
Test 2 2012 Multiple Choice Identify the choice that best completes the statement or answers the question by filling in the bubble on the scantrons. ____ 1. Jeff decides that he would pay as much as $4,000 for a new laptop computer. He buys the computer and realizes consumer surplus of $800. How much did Jeff pay for his computer? a. $700 b. $2,300 c. $3,000 d. $3,200 e. $3,700 ____ 2. Which of the following is the most correct statement about tax burdens? a. A tax burden falls most heavily on the side of the market that is elastic. b. A tax burden falls most heavily on the side of the market that is inelastic. c. A tax burden falls most heavily on the side of the market that is closer to unit elastic. d. A tax burden is distributed independently of relative elasticities of supply and demand. ____ 3. When the government places a tax on a product a. the cost of the tax to buyers and sellers will be less than the revenue raised from the tax by the government. b. the cost of the tax to buyers and sellers will equal the revenue raised from the tax by the government. c. the cost of the tax to buyers and sellers exceeds the revenue raised from the tax by the government. d. without additional information, such as the elasticity of demand for this product, it is impossible to compare tax cost with tax revenue. ____ 4. When evaluating the size of the deadweight loss due to a tax we know that the a. greater the elasticities of supply and demand, the greater the deadweight loss. b. smaller the elasticities of supply and demand, the greater the deadweight loss. c. smaller the decrease in both quantity demanded and quantity supplied, the greater the deadweight loss. d. primary factor that determines the size of the deadweight loss in the percentage the tax is of price. 1 Figure 8-2 ____ 5. Refer to Figure 8-2. The amount of tax revenue received by the government is equal to the area a. P A3C P . 1 b. A B C. c. P D2A P . 3 d. P C1D P . 2 ____ 6. Refer to Figure 8-2. The amount of deadweight loss associated with the tax is equal to a. P A3C P . 1 b. A B C. c. P A D P . 2 3 d. P D1C P . 2 ____ 7. Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing clothing, exporting steel, and neither importing nor exporting rugs. We can conclude that producer surplus in Aquilonia is now higher for a. steel, lower for clothing, and the same for rugs. b. clothing and steel, but not rugs. c. clothing and rugs, but not steel. d. clothing, lower for steel, and the same for rugs. 2 Figure 9-1 ____ 8. Refer to Figure 9-1. Without trade, consumer surplus would be a. $210. b. $245. c. $420. d. $455. e. $490. ____ 9. Refer to Figure 9-1. With free trade, this country would a. import 70 baskets. b. export 65 baskets. c. export 35 baskets. d. import 40 baskets. e. export 105 baskets. ____ 10. Refer to Figure 9-1. With free trade, consumer surplus would be a. $45. b. $80. c. $160. d. $210. e. $245. ____ 11. When a country allows trade and becomes an importer of a good, which of the following would NOT be true? a. The gains of domestic consumers exceed the losses of domestic producers. b. The losses of domestic producers exceed the gains of domestic consumers. c. The price paid by domestic consumers of the good decreases. d. The price received by domestic producers of the good decreases. ____ 12. XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 275 units sold was sold for a price of $100. Total revenue for the XYZ corporation would be a. -$2,500.. b. $2,500. c. $26,125. d. $27,500. e. $30,000. 3 Figure 7-7 ____ 13. Refer to Figure 7-7. If the price decreases from $22 to $16, consumer surplus would increase by a. $120. b. $360. c. $480. d. $600. e. $1,080. ____ 14. Refer to Figure 7-7. Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus due to additional sales would be equal to a. $90. b. $210. c. $360. d. $480. ____ 15. The domestic price of a product will equal the world price a. when the domestic supply of the product increases. b. when the country allows free trade. c. when trade restrictions are imposed on the product. d. if the country chooses to export and not import the product. e. if the government imposes trade restrictions. ____ 16. When a country allows trade and becomes an importer of a good consumer surplus a. and producer surplus will increase. b. and producer surplus will decrease. c. will increase and producer surplus will decrease. d. will decrease and producer surplus will increase. 4 ____ 17. Economic profit is equal to (i) total revenue - (explicit costs + implicit costs). (ii) total revenue - opportunity costs. (iii) accounting profit + implicit costs. a. (i) only b. (i) and (ii) c. (ii) and (iii). d. All of the above are correct. Scenario 13-2 Zach took $500,000 out of the bank and used it to start his new cookie business. The bank account pays 4 percent interest per year. During the first year of his business, Zach sold 12,000 boxes of cookies for $3 per box. Also, during the first year, the cookie business incurred costs that required outlays of money amounting to $14,000. ____ 18. Refer to Scenario 13-2. Zach's accounting profit for the year was a. $-478,000. b. $-56,000. c. $2,000. d. $22,000. ____ 19. Refer to Scenario 13-2. Zach's economic profit for the year was a. $-478,000. b. $-56,000. c. $2,000. d. $22,000. 5 The figure below depicts a production function for a firm that produces cookies. Use the figure to answer the following questions. Figure 13-1 ____ 20. Refer to Figure 13-1. As the number of workers increases, a. total output increases, but at a decreasing rate. b. marginal product increases, but at a decreasing rate. c. marginal product increases at an increasing rate. d. total output decreases. ____ 21. On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product? a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers. b. The farmer is able to produce 5,800 bushels of wheat when he hires 4 workers. c. The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers. d. All of the above are correct. Scenario 13-4 For the following questions, assume that a given firm experiences decreasing marginal product of labour with the addition of each worker regardless of the current output level. It also has a capital stock which is fixed. ____ 22. Refer to Scenario 13-4. Average fixed cost will be a. always rising. b. always falling. c. U-shaped. d. constant. ____ 23. Refer to Scenario 13-4. Average total cost will be a. always rising. b. always falling. c. constant. d. U-shaped. 6 ____ 24. The marginal cost curve crosses the average total cost curve at a. the efficient scale. b. the minimum point on the average total cost curve. c. a point where the marginal cost curve is rising. d. All of the above are correct. ____ 25. In a competitive market, no single producer can influence the market price because a. many other sellers are offering a product that is essentially identical. b. consumers have more influence over the market price than producers do. c. government intervention prevents firms from influencing price. d. producers agree not to change the price. ____ 26. When a firm in a competitive market produces 11 units of output, it has a marginal revenue of $9.00. What would be the firm's total revenue when it produces 8 units of output? a. $4.80 b. $6.00 c. $48.00 d. $60.00 e. $72.00 ____ 27. If a competitive firm is (i) selling 1,000 units of its product at a price of $9 per unit and (ii) earning a positive profit, then a. its total cost is less than $9,000. b. its marginal revenue is less than $9. c. its average revenue is greater than $9. d. All of the above are correct. ____ 28. If marginal cost exceeds marginal revenue, the firm a. is most likely to be at a profit-maximizing level of output. b. should increase the level of production to maximize its profit. c. must be experiencing losses. d. may still be earning a profit. 7 Use the information for a competitive firm in the table below to answer the following questions. Table 14-2 Quantity Total Revenue Total Cost 0 $0 $10 1 9 14 2 18 19 3 27 25 4 36 32 5 45 40 6 54 49 7 63 59 8 72 70 9 81 82 ____ 29. Refer to Table 14-2. At a production level of 4 units which of the following is true? a. Marginal cost is $6. b. Total revenue is greater than variable cost. c. Marginal revenue is less than marginal cost. d. All of the above are correct. ____ 30. Refer to Table 14-2. If this firm chooses to maximize profit it will choose a level of output where marginal cost is equal to a. 6. b. 7. c. 8. d. 9. ____ 31. Refer to Table 14-2. If the firm finds that its marginal cost is $11, it should a. increase production to maximize profit. b. increase the price of the product to maximize profit. c. advertise to attract additional buyers to maximize profit. d. None of the above are correct. ____ 32. The short-run supply curve for a firm in a perfectly competitive market is a. likely to be horizontal. b. likely to slope downward. c. determined by forces external to the firm. d. its marginal cost curve (above average variable cost). ____ 33. When price is below average variable cost, a firm in a competitive market will a. shut down and incur fixed costs. b. shut down and incur both variable and fixed costs. c. continue to operate as long as average revenue exceeds marginal cost. d. continue to operate as long as average revenue exceeds average fixed cost. 8 ____ 34. A profit-maximizing firm in a competitive market produces small rubber balls. When the market price for small rubber balls falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, the firm a. will experience losses but it will continue to produce rubber balls. b. will shut down. c. will be earning both economic and acco
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