Hubbard Principle of Economics Practice Questions for Test

1. a 11. a 21.c 31.c 41. c2.d 12.c 22.e 32.d 42.c3. b 13.c 23.c 33.b 43.d4.b 14.b 24.b 34. a 44.b5.d 15.b 25.c 35. b 45.a6.d 16.c 26. a 36.c 46.c7.d 17.c 27.a 37.c 47.c8.b 18.b 28.c 38.a 48.c9. b 19.c 29. a 39.c 49.c10.c 20. a 30.a 40.d 50. a

51.e 61.a 71.a 81.d 91. d52.b 62.a 72.b 82. b 92.c53.b 63.b 73.a 83. b 93.c54.b 64.c 74.b 84.c 94.b55.d 65.a 75.b 85.c 95.b56.c 66.c 76.d 86. a 96.a57.a 67.a 77.d 87.a 97.d58.a 68.d 78.d 88. b 98. b59.b 69.a 79. c 89.c 99.d60.c 70.d 80.d 90.a 100. b

Practice Final Exam #5 for Micro Economics 10'

Answer Kev - Practice Final Exam .5

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1. When a firm decidesto producemoreelectriccars and fewergas guzzlers, it is answeringthequestion.

a) "what"b) "how"c) "who"d) "where"e) "when"

2. Suppose there are only three things you can do rather than attend a community social event: read a novel(you value this at $5), go to work (you could earn an extra $7), or watch videos with some friends (you valuethis at $10). The opportunity cost of attending the community social event is:

a) zero.b) $5, because this is the lowest valued alternative forfeited.c) $7, because going to work is the only alternative involving a genuine monetary payment.d) $10, because this is the highest valued alternative forfeited.e) $22, because this is the total donar amount of the three alternatives.

3. AUof the foIlowing acqH one are true of economic theories or models. Which one is the exception?a) They attempt to establish cause and effect between economic variables.b) They always reflect reality.c) They are built with assumptions and then tested with facts.d) They are generalizations used to give context to our observations.

4. Suppose you paid $1,500 to take a sailing class, which meets 45 times, for one hour per class, during thecourse of the summer. Instead of sailing you could either flip hamburgers for $7 an hour or wait tables for$5 an hour. The opportunity cost of attending each sailing lesson:

a) is $33.b) is $7.c) is $5.d) cannot be detennined. You need to know the benefit of each sailing class.

5. Someone who says he loves his mother far more than he loves hockey but nonetheless attends a hockey gamewhen he could be visiting his mother:

a) displays weakness of will.b) is a hypocrite.c) is behaving inconsistently with his own stated values.d) places a lower marginal value on visiting his mother than on attending the hockey game.e) shows that the marginal value of visiting his mother is less for him than the marginal cost of

attending the hockey game.

6. An economic study concludes that requiring employers to provide health insurance to all employees wouldslow the rate of job creation. This conclusion is an example of:

a) nonnative analysis.b) the concept of opportunity cost.c) a value judgment.d) positive analysis.

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A B C D E

Arruws 0 1 2 3 4Villers 20 18 14 8 0

n_ __. _._ ...____

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7. During the nineteenth and early twentieth centwy, millions of people immigrated to western Canada. Theeffect on the Canadian economy was to:

a) move it beyond its production possibility boundary.b) move it inside its production possibility boundaIy.c) shift its production possibility boundary inward.d) shift its production possibility boundaly outward.e) none of the above.

REFER TO THE TABLE BELOW WHEN ANSWERING THE NEXT 4 QUESTIONS:

8. Refer to the table above. What is the opportunitycost of producingthe third unit ofArrows?a) I unit of Viners c) 8 units of Vinersb) 6 units of Viners d) 14units of Viners

9. Refer to the table above. Whichofthe following statements describes the ppfdescribed in the table above?a) As the economy's production level of any particular item decreases, its opportunity cost rises.b) As the economy's production level of any particular item increases, its opportunity cost rises.c) The prices of consumer goods always rise and never fall.d) If someone waits to make a purchase, she will pay a higher price.e) The total cost of production rises as output goes up.

10. Refer to the table above. Suppose that the production alternatives for each of Arrows and Viners increaseby 10% due to technological change. This is called and the ppf will

a) capital accumulation; not change.b) unemployment; shift to the left.c) growth; shift to the right.d) price switching; change shape and exhibit decreasing opportunity costs.

1I. Refer to tire fable above. Production alternative 2 Arrows; 10 Viners could represent:a) unemployed resources.b) productive efficiency in the use of resources.c) fully employed resources.d) allocative inefficiency.

12. During a heated campaign, a politician promises increased funding for beaItb care and education which willresult in both reduced wait times and smaller class sizes without sacrifice.

a) this is impossibleb) possible only if there are fully employed resourcesc) possible only if the economy is currently operating inside its ppfd) possible if the economy is currently operating on its production possibility &ontier

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n __. _.- -....-

__n__ n._ n _ ._ _____

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13. Suppose that your tuition to attend college is $8,000 per year and you spend $5,000 per year on room andboard. If you were working fuU time, you could earn $.22,000 per year. What is your opportunity cost ofattending college?

a) $13,000 c) $30,000b) $27,000 d) $35,000

14. Sonya is employed at a stock brokerage firm where she earns $25 per hour. The office she works at islocated downtown. To get to work each day, she must either ride a series of buses that takes one-and.a.haIfhours at a cost of$2, or take a cab that takes 30 minutes and costs $20. In order to maximize her income,Sonya should:

a) ride the bus because it costs less money.b) take the cab because the net loss is less than that of riding the bus.c) ride the bus because the opportunity cost is less than that of taking a cab.d) take the cab because the opportunity cost if greater than that of riding the bus.e) ride the bus because the net loss is greater than that of taking a cab.

REFER TO THE DIAGRAM BELOW WHEN ANSWERING THE NEXT 2 QUESTIONS:

15. Refer to the above diagram. Householdsbuy goodsinthegoodsmarket-arrow#_: householdsreceive income from resource markets-arrow #

a) 6; 8. c) 5; 8.b) 4; 3. d) 2; 3.

16. Refer to the above diagram. Box K ( ) supply goods to the goods market (arrow #households supply resources to the resource markets (arrow # ).

a) goods market; 6; 8. c) firms; 7; 5.b) firms; 6; 3. d) households; 5; 2.

} and

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SOYA COOKIES 80 60 40 20 0RICE CAKES 0 10 20 30 40

ERIC'S PRODUCTION POSSIBILITIES (in doums)

A B C D E

SOYA COOKIES 160 120 80 40 0RICE CAKES 0 30 60 90 120

JOJAJJ .FINAL Pag#!4

REFER TO TIlE TABLE BELOW WHEN ANSWERING TIlE NEXT 3 QUESTIONS:Below is production possibilittes data Jor the neighbours of Melanie and Eric for an aftemoon of work.

MELANIE'S PRODUCTION POSSlBIUTIES (in doUlU)

ABC D E

17. Refer to the above table. What is the opportunity cost of one unit of rice cakes for Melanie?a} 0.25 units of soya cookiesb} 0.5 units of soya cookies d} 10 units of soya cookiesc} 2 units of soya cookies e) 20 units of soya cookies

18. Refer to the above table. What is the opportunity cost of one unit of rice cakes for Eric?a) 0.375 units of soya codciesb) 1.33 units of soya cookies d) 20 units of rice cakesc) 2.67 units of soya cookies e) 40 units of rice cakes

19. Refer to the above table. In which product should Eric specialize and trade?a) He should specialize in soya cookies and trade rice cakeS for more cookies.b) He should specialize in and trade soya cookies.c) He should specialize in and trade rice cakes.d) He should specialize in rice cakes and trade soya cookies for more rice cakes.

20. Suppose that the opportunity cost of producing I unit of wine inHappy Island is 2 units of rice; in SillyIsland the opportunity cost of 1 unit of wine is 4 units of rice. What might be possible tenns of tradebetween the two islands?

a) 1 unit of rice: 3/8 units of wine c) I unit of rice: 6 units of wineb) 1 unit rice: 3 units of wine d) 1 unit of rice: 1 unit of wine

21. In the production of which one of the following are we least likely to experience market failure?a) education d) chemical fertilizerb) national defence e) parksc) bread

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22. For individuals, comparative advantage springs from:a) inborn talent exclusively.b) education, training and experience exclusively.c) social customs.d) non-economic factors exclusively.e) a combination of inborn talent, education, training, and experience.

23. Jack has a ticket to see Smashmouth which he paid $30 for yesterday. He already has the day off from workto go to the concert. When he arrives at the concert, 5 different people offer him $70 for his ticket The costto Jack:of seeing Smashmouth is:

a) $30.b) $40. d) $70 plus his forgone earnings.c) $70. e) his forgone earnings.

24. If you observe that the price of a good has fallen and the quantity demanded of that good has also fallen, youwould correctly:

a) conclude that the law of demand does not hold in this case.b) look for other things that may have changed and affected the analysis besides price.c) use this as an example of the law of demand where other things are held constant.d) conclude that the law of demand is causing the quantity demanded to rise.

25. If your favorite restaurant lowered its prices, which of the following would most likely happen?a) demand would drop c) quantity demanded would increaseb) demand would increase d) quantity demanded would drop

26. Which of the following will cause an increase in the supply of telephones?a) a decrease in the price of labor used to manufacture telephonesb) an increase in the price of electrical components used to manufacture telephonesc) a decrease in the demand for telephonesd) a decrease in the number of sellers in the market

27. Gerald is a freelance writer who could work for a newspaper at $25,000 a year but instead worles for himselffor $40,000 a year. His only business expenses are $1,000 for writing materials and $12,000 for rent. Whatis Gerald's economic profit for working as a freelance writer?

a) $2,000b) 28,000c) $15,000d) $25,000e) $27,000

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Price Quantity demanded Quantity Supplied($ pel' lb.) (lbs.) (lbs.)

.10 30,000 5,000

.25 25,000 10,000

.50 20,000 20,000

.75 15.000 30,000

.95 5,000 40.000

A Quantity B Quantity

III IIIU so u'C 'C 51a. a.

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28. Refer to the table below:

The table above shows the demandand supply schedulesfor port bellies. At a price of 50 cents per pound:a) there is a shortageof 20,000 units. c) the martet is in equilibrium.b) there is a surplus of 20,000 units. d) there is downwardpressure on prices.

REFER TO THE DIAGRAMS BELOW WHEN ANSWERING THE NEXT J QUESTIONS:

C Quantity D Quantity

29. Refer to the diagrams above. The graph above that best represents the impact of an increase in the price ofchicken on the beef market is:

a) A. c) C.b) B. d) D.

30. Refer to the diagrams above. The graph above that best represents the impact ofan increase in consumerpreference for compact disc players on the market for compact discs is:

a) A. c) C.b) B. d) D.

31. Refer to the diagrams above. Thegraph above that best representsthe impact of an increase in input costs is:a) A. c) c.b) B. d) D.

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d._____ ..u ~._ -- . .- - -.- --- - .

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32. Assume both the demand and the supply of 128MB memory chips decrease. Which of the followingoutcomes is certain to occur?

a) The equilibrium price of 128MB memory chips will rise.b) The equilibrium quantity of 128MB memory chips will rise.c) The equilibrium price of 128MB memory chips will fall.d) The equilibrium quantity of 128MB memory chips will full.e) Neither the equilibrium price nor the equilibrium quantity of 128MB memory chips caDbe

predicted.

33. People scalping tickets for a rock concert will be successful:a) any time the rock group is popular.b) when the price set by the concert hall is less than the market equilibrium price.c) when prices are too high.d) only when there is excess supply.

34. Refer to the diagram below:

3.53enG):: 2.5

G)

~ 2tou 1.5-o 1Q)u"i: 0.5c..

oo 2 4 6 8 10 12 14 16

Quantity of cassettes

A price floor set by the government would cause the greatest distortion in the market with a price set at:a) $3.00. c) $2.25.b) $2.50. d) $1.50.

35. New York City bas been experiencing a shortage of housing for quite some time. A price ceiling on rentlower than equilibrium price in New York City will:

a) make the shortage smaller. c) increase the supply of apartments.b) make the shortage greater. d) increase the demand for aparbnents.

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$

PI

u P2~t.'I:I.c:1ft=='Eb P3~uuP4';:Q.

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36. Refer to the diagram be/ow:$

10II8 -j-, 1I ,

~ 6 - I --.--.;: '"Q. 4 -J _ _1_ _ .L _I I .I I I 1

2 - + - -1-- + - -1--, I I I II I I I II I . 1 I

1 2 3 4 SNumber of Hamburgers Q

Using the midpoint fonnula, if the price ofa hamburger is increased from $6 to $8, the price elasticity ofdemand equals:

a) .024.b) .71.

c) 1.4.d) 2.

37. At a price of S10 the same amount of income was spent on cassette tapes as when the price of cassette tapeswas $13. Therefore demand for cassette tapeS is:

a) perfectly inelastic. c) unitarily elastic.b) inelastic. d) elastic.

38. Refer to the diagram b~ow:

Number of milkshakes Q

The demand for milkshakes is unitarily elastic at point C. If the price of a milkshake is reduced from PJ toP2, total revenue:

a) will increase.b) will decrease.

c) will remain constant.d) could either increase or decrease.

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QUANTITY QUANTITYPRICE S DEMAND SUPPLIED

8.00 70 508.50 65 559.00 60 609.50 55 6510.00 50 70

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39. The bus fare charged by the mass transit authority is $1.25 during the morning rush, but only $1.00 duringthe early afternoon. This can be explained by the fact that the demand for bus rides during the morning rushhour is ; but during the early afternoon the demand for bus rides is

a) more elastic; less elastic.b) perfectly elastic; perfectly inelastic.c) less elastic; more elastic.d) unitarily elastic; inelastic.

40. Which of the following is likely to have the most elastic demand?a) beveragesb) nonalcoholic beveragesc) soft drinksd) Pepsi

REFER TO THE TABLE BELOW WHEN ANSWERING THE NEXT 2 QUESTIONS:

4 I. Refer to the table above. What will be the equilibrium price and quantity if a $1 per unit excise tax isimposed on this product?

a) $10 and 70.

b) $10 and 50c) $9.50 and 55d) $9.50 and 65

42. Refer to the table above. lfthe government imposes a $1 per unit sales tax on this product, how much ofthat tax will consumers pay and how much will sellers pay?

a) consumers will pay all $1 of the taxb) consumers will pay $.75 and sellers $.25c) consumers and sellers will each pay $.50d) consumers will pay $.25 and sellers S.75e) sellers will pay all SI of the tax

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REFER TO THE TABLE BELOW WHEN ANSWERING THE NEXT 3 QUESTIONS.

GOOD X (52 each)

Q~~~ff";'1i'~t.ij"Ytg!~t"1 202 323 424 485 526 54

GOOD Y (SI each)... , , ....

'.9~-~~~~ty>:,';,;t;~~~:y~Ott:"

1 142 243 324 375 406 42

43. Refir to the table above when answering this question.consumption of:

a) 6 units of X and 1 unit of r.b) 5 units of X and 3 units of r.c) 4 units of X and 5 units of r.

If income is $10, then utility is maximized with

d) 3 units of X and 4 units of r.e) 1 unit of X and 9 units of r.

44. Refir to the table above when answering this question. If income remains at S10 and the price of Yincreases to $2.00 what combination of X and Y will the consumer buy to maximize satisfaction?

a) 4 units of X and 3 units of Y c) 2 units of X and 2 units of Yb) 3 units of X and 2 units of Y d) 5 units of X and 5 units of Y

45. Refer to the table above when answering this question. Which two of the following combinations of priceand quantity would lie along this consumer's demand for Y?

a) Q: 4Y, P: $1.00 and Q: 2Y, P: $2.00b) Q: 3Y, P: $1.00 and Q: 5Y, P: $2.00c) Q: 4Y, P: $1.00 and Q: 3Y, P: $2.00d) Q: 5Y, P: $1.00 and Q: lY, P: $2.00

46. Ben quit his job as a college professor to become a golf professional. He gave up his salary (S30,OOO)andinvested his savings 0£$10,000 (which were earning 10 percent interest) in this venture. After all expenses,his net winnings (accounting profit) were S35,000. Ben's economic profits were:

a) $35,000. c) $4,000.b) $5,000. d) -$5000.

47. You are consuming hot dogs and Colces and believe you are maximizing utility for your entire budget ofS6,and hot dogs and Cokes each cost SI. Suppose the price of hot dogs rises to $2 and the price of Cokesremains at $1. You adjust your consumption of hot dogs and Cokes and believe you are once again receivingmaximum total utility from the meal. Which one of the following can you conclude?

a) The total utility of hot dogs is maximized.b) The marginal utilities of hot dogs and Cokes must be equal.c) The marginal utility of hot dogs must rise compared to the marginal utility of Cokes.d) you are purchasing 2 hot dogs and 2 Cokes.e) You are purchasing I hot dog and 4 Cokes.

Practice Final 5

I .. ... .. . .. .. . .-............. .-.. . .. ..... ..................'

.'...ArC<::. ... .. .... .....

.)AVC..". HTOtiJI.. ..

.......2i1i$jj}f' .;/$).....: -. .. .., -....($).............,......

0 10

I 15 5.00 15.00

2 18 4.00 9.00

3 20 3.30 6.67

4 23 3.25 5.75

5 28 3.60 5.60

6 38 4.67 6.37

7 50 5.71 7.14

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48. The Framing Gallery ftames posters. The Framing Gallery has total fixed costs of$500. The FramingGallery's average variable cost is $20 and its average total cost is $25. The Framing Gallery is currentlyframing:

a) 5 posters.b) 25 posters.e) 100 posters.d) a number of posters that is indetenninate iTomthis infonnation.

REFER TO THE TABLE BELOW, WHICH REPRESENJ'S A PERFECTLY COMPETITIVE FIRM, WHENANSWERING THE NEXT 5 QUESTIONS.

49. Refer to the information in the above table. What is the value of the break-even price?a) $3.60b) $5.00 d) $3.25e) $5.60 e) $6.00

50. Refer to the tnformation in the above table. What is the value of the shut downprice?What are the losses ?

a) $3.25; -$10 e) $5.75; 0b) $4.00; -$23 d) $13; profit $41

51. Refer to the information in the above table. The profit-maximizingoutput at a market price of$IO is_and the profit( +)Iloss( -) is approximately _ .

a) 0; -$10.b) 3; -$40. d) 5; -$10.e) 4; -$23. e) 6; +$22.

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p Q p Q p Q p Qa) $3 4,000 b) $3 0 c) $3 0 d) $3 2,000

$5 5,000 $5 5,000 $S 0 $6 6,000$10 6,000 $10 6,000 $10 6,()()() $8 7,000$12 7,000 $12 7,000 $12 7,000 $10 10,000

53. Refer to the information in the above table. Given the following market demand, what will happen to theindustry in the long run?

..." ....."..

,','"',,,,.

$3 8,000$5 7,000$10 6,000$12 5,000

_ ..n_. _..

10lA3 FINAL-sk Page 11

52. Refer to the information in the above table. The "supply" for the industry containing 1000 finns is;

a) New finns will enter the industry thus causing the price to rise.b) New finns will enter thus causing the price to fall to the "breakeven price" .c) Some finns will leave so that the remaining firms can make normal profits.d) Nothing will happen in the long run since existing firms are already in long run equilibrium.


B

Number of workers

Marginal product is zero;a) at pointA.b) at pointB.

c) at point C.d) Never on the graph.

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CII...!!Q'C.5lit-litCU

ATC

Output

The graph showing costs of production:a) is correct.b) is wrong because the average variable and average total cost curves are confused.c) is wrong because the minimum of the average variable cost curve precedes the minimum of the

average total cost curve.d) is wrong because the marginal cost curve and the average total cost curves are confused.

56. lfthe average cost of producing 9 sweaters is $6.50 and the marginal cost of producing the l()l't sweater is$6.25, then the average cost will:

a) remain the same. c) decrease.b) increase. d) double.

57_ Economies of scale account for the:a) downward sloping part of the long-run average cost curve.b) straight part of the long-run average cost curve.c) upward sloping part of the long-run average cost curve.d) horizontal part of the long-run average cost curve.

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II)~!!!'0'C ~TC.sIII-IIIQ0GJu1:Q..

0Output

59. A perfectly competitive firm in the long-run earns normalprofits but economicprofits.

a) negative~ zero c) positive; positiveb) positive; zero d) zero~ zero

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Suppose that price is $8 in the above diagram. Given this price. a perfectly competitive firm should:a) continue to produce in the short-run but shut down in the long-run.b) continue to produce in both the short-run and the long-run.c) shut down in the short-run but continue production in the long-run.d) shut down permanently.

60. The firms in the oat industry are currently receiving a price of $2 per bushel for their product and there areconstant returns to scale. The minimum possible average cost of producing oats in the long run is $3 perbushel. Other things being equal, it follows that:

a) the price of oats will be $2 in the long run.b) the price of oats will be somewhere between $2 and $3 in the long run.c) the price of oats will be $3 in the long run.d) it is not possible to determine the price of oats in the long run from the information given.

61. Perfect competition is said to be efficient because:a) the marginal costs to society are equal to the marginal benefits. and average costs are at a

minimum in production.b) the marginal costs to society are less than the marginal benefits. andATC = AVC.c) the marginal benefits are less than the marginal costs, and MC is increasing.d) the total costs to society are equal to the total benefits, and LRA TC is at its lowest.

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62. If you werewillingto pay $4 for a bottleof soda. but onlyhad to pay the goingprice ofS.85, you wouldbereceiving:

a) consumer surplus. c) welfare loss.b) producer surplus. d) marginal revenue.

REFER TO THE DIAGRAM BELOW WHEN ANSWERING THE NEXT 2 QUESTIONS.

s

Number of High School Yearbooks

This diagram represents the cost and demand conditions facing theSilver Momento Company which has a monopoly over the sole of high schoolyearbooks in the city of Windsor.

63. Refer to the above diagram. The profit-maximizing level of output for the Silver Momento Companyis high school yearbooks. The profit-maximizing price is $

a) 0; SO.b) 200; $16. d) 350; $13.c) 200; $9. e) 200; $20.

64. Refer to the above diagram. The profit-maximizing level of profit for the Silver Momento Company is:a) -$1,800.b) -$1,200. d) $0.c) -$800. e) $2,400.

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252322~20- 15"0

A10

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___ ._uo _ ___.__

65. Refer to the diagram be/ow:

Sc=sum offinn MC curves= MCmonopolyATCmonopoly

400 600 800 MRNumber of paper bags

If the paper bag industry is initially competitive and becomes monopolized, industry profits Will:a) increase from $0 to $1,800.b) increase from $0 to $6,000.c) increase from $5,200 to $6,000.d) increase from $3,000 to $5,200.

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/0/ Fall-FINAL-sk. Page /8


MC == AC

D

1 200 Q

Megawatts of electricityproduced by Meridian Hydro

66. Refer to the diagram above.is megawatts.

a) 500b) 600

From society's point of view the efficient level of electricity production

c) 900d) 1,200

67. Refer to the diagram above. If Meridian Hydro is forced to produce the efficient level of output:a) the monopolist loses profits equal to FGJE.b) the net social gain equals area JEK.c) consumers gain consumer surplus of AFK.d) All of the above.

68. If a natural monopoly is broken up into smaller competing firms, the price of its product:a) will decrease because competition has increased.b) will decrease because smaller firms are price takers.c) will increase because the monopolist no longer has to worry about keeping rivals ITomentering

the industry.d) will increase because the smaller competing firms will face higher average costs of production

than the natural monopolist.

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69. Which one of the following is not consistent with the capture theory of regulation?a) Regulation of a natural monopolist by setting price equal to marginal cost.b) Regulation of a competitive industry to decrease output.c) Regulation of the airline industry to increase airfares.d) Regulation of railways by establishing barriers to entry to the industry.

70. Cost-conscious consumers use cents-off coupons when purchasing items such as soap or frozen dinners. Asa result, they pay a lower price. This is an example of:

a) welfare loss. c) quantity discrimination.b) breaking even. d) price discrimination.

71. The justification for having a list price and offering a mail in rebate coupon is to:a) separate the market into the less price sensitive and the more price sensitive.b) discourage all consumers from filling out the rebate form.c) make the consumer wait 6 months for the 50 cent check.d) appeal to those consumers who enjoy corresponding with large corporations.e) appeal to those consumers who dislike corresponding with large corporations.

72. As profitable firms in a monopolistically competitive market enter the long run:a) price increases, the market quantity demanded increases, and the quantity supplied by an

individual firm increases.b) price decreases, the market quantity demanded increases, and the quantity supplied by an

individual firm decreases.c) price decreases, but firm profits increase as average costs decrease.d) price increases and firm profits increase.

73. If suppliers differentiate their products in a monopolistically competitive market by selling at a variety oflocations, consumers must trade-off:

a) lower travel costs for higher average costs of production.b) lower prices for higher travel costs.c) higher prices for higher travel costs.d) lower prices for lower average costs of production.

74. Oligopoly is very difficult to analyze because:a) there are relatively few firms and each firm is very large.b) of the complex interdependence that usually exists among firms in the industry.c) products produced by the firms may be either differentiated or homogeneous.d) entry into the industry is blocked.

75. In which of the following circumstances would a cartel be most likely to work?a) The coffee market, where the product is standarized and there are a large number of coffee

growers.b) The market for copper, where there are very few producers and the product is standardized.c) The automobile industry, where there are few producers but there is great product

differentiation.d) The fast-food market, where there is a large number of producers but the demand for fast food

is inelastic.

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101AJ FINAL-sic Page 19

76. Refer to the diagram below, that refers to costs and demand conditions for the chewing gum industry.

1214 16 QPacks of chewing gum in thousands

Costs and Demand Conditions for theChewing Gum Industry

Six firms that produce chewing gum have fonned a cartel. If the carter produces the profit maximizingoutput level each finn should produce equal quantities of:

a) 2,000 packs of chewing gum.b) 6,000 packs of chewing gum.c) 12,000 packs of chewing gum.d) output levels that are indetenninate trom this infonnation.

Practice Final 5

Invest Not Invest

~'.;-:.Invest $20 A $5 Ai1.

FIRM 1J $20 B $70 B,

Not Invest $70 A $50 A$5 B $50 B

. --- -- --

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pr~J; rREFER TO THElABLE BELOW WHEN ANSWERING THE NEXT 2 QUESTIONS:

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77. Refer to the above table. Firm A finds that:a) investing is its game strategic strategy.b) not investing is its dominant strategy.c) it has no dominated strategy.d) investing is its dominant strategy.e) it has no dominant strategy.

78. Refer to the diagram above. The reason the game is a prisoner's dilemma is because:a) both firms choose the same strategy.b) neither firm has a dominant strategy.c) the finns choose different strategies.d) both firms find that a cooperative strategy produces a better outcome than the dominant strategy.

79. People don't usually behave in a noncooperative fashion even when it is in their immediate interest to do sobecause:

a) they realize such behaviour is immoral.b) they try to treat others as they want to be treated themselves.c) they know they will have repeated dealings with the other people.d) they understand the difficulties with game theory.

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REFER TO THE TABLE BELOW WHEN ANSWERING THE NEXT 2 QUESTIONS.

80. Refir to the above table. If the finn can sell all the output it wants for the price of$5, what is the marginalrevenue product of the 4thunit oflabour?

a) without the wage rate, this cannot be detenninedb) $0c) $25d) $40e) $185

81. Refer to the above fable. If the finn can sell all the output it wants for the price of$5, what is the profit-maximizing employment level ifit can hire all the labourers it wants for a wage rate of$25?

a) it will hire only 1 unit of labourb) it will hire 4 units of labour d) it will hire 6 units of labourc) it will hire 5 units of labour e) it will hire 7 units of labour

82. When a firm is a price-taker in the labour market, its marginal revenue product of labour curve is also itsa) marginal cost curve for labour.b) demand curve for labour. d) supply curve of output.c) supply curve oflabour. e) average revenue curve.

83. Which of the following would, graphically, cause a shift to the right in the demand curve of a factor?a) a decrease in the price of that factorb) an increase in the price of a substitute factorc) a decrease in the price of the product produced by the factord) an increase in the marginal product of a substitute factor

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..8.IW1W2

o Ql Q2 Q3 Quantity oflabor

84. Refer to the diagram above. Suppose there is a single buyer of labor in the market. Assuming the supply oflabor is competitive, the likely wage the monopsonist would set and the quantity of labor hired is:

a) WI and QI.b) W2 and Q2.c) W3 and Q2.d) W4 and QI.

85. Refer to the diagram above. Suppose there is a single buyer of labor in the market and a single union thatsupplies labor. The likely wage in the market would be:

a) WI.b) Between W2 and WI.c) Between W2 and W3.d) Between W2 and W4.

86. Refer to the diagram above. Suppose both the labor supply and demand markets are competitive. The likelywage in the market would be and the quantity would be

a) WD: Q3. c) W2: Q2.b) WI: QI. d) W3; Q2.

87. Suppose the following conditions exist: All labour is mobile and possesses the same skills; non-monetaryadvantages are the same across industries; and the demand conditions for labour are the same. In this case,we expect wage rates to:

a) be the same in all industries.b) be higher in some industries.c) be the same in most industries.d) fluctuate depending on demand.e) differ because of the desirability of the location of the job.

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88. The fundamental dilemma facing unions is:a) job security versus worker safety.b) wage increases versus employment growth.c) wage increases versus employment benefits.d) members' roles as workers versus their roles as consumers.e) aU of the above.

89. A homeowner decides to buy three large dogs that sleep outdoors and who howl at the moon. An externalityassociated with this decision is:

a) the increased work for the homeowner in yard cleanup.b) the cost of purchasing the dogs.c) the neighbours' lost sleep.d) the homeowner's lost sleep.e) all of the above.

90. Competitive markets are unlikely to produce an efficient amount of a public good because:a) there is no way to prevent a person not willing to pay for the good from receiving benefits from

the good.b) of the cost of the public good.c) social benefits exceed social costs.d) of the existence of moral hazard.e) of the existence of adverse selection.

91. The free-rider problem means that:a) the private market will produce the efficient amounts of a public good.b) too many people will over consume a public good.c) government will not be able to produce an efficient amount ofa public good.d) it is impossible or impractical to make people pay for a public good.e) people need to pay a government user fee to pay for the good's production.

92. Zero pollution is not a desirable social goal because:. a) the marginal benefit is equal to zero.

b) the marginal cost is equal to zero.c) the cost of complete pollution elimination will be far greater than the benefit.d) the benefit of complete pollution elimination will be tar greater than the cost.e) it is good to have jobs in the "pollution fighting" industries.

93. Federal regulation that tries to reduce air pollution by setting some maximum level for emissions from eachpoIluter:

a) is the best approach because the cost of reducing emissions are different for each polluter.b) is the best approach because polluters will quickly reduce air pollution.c) will usually not produce the desired reduction in air pollution at the lowest cost.d) will achieve the largest but not the most efficient reduction in air pollution.

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94. lithe government imposes a tax payable on each unit of pollution that a firm produces, the firm will:a) stop producing.b) reduce emissions until the marginal cost of any further reduction in pollution is equal to the tax.c) reduce emissions until the marginal cost of any further reduction in pollution is equal to the price

of the finn's product.d) increase output such that the additional revenue can offset this additional tax payment.

95. One of the most promising strategies for efficiently overcoming the market failure that leads to environmentalpollution may be:

a) direct pollution controls.b) govenunental creation of a "market" in ''bads''.c) forcing polluters to clean up polluted water, earth and air.d) govenunent legislation banning pollution.

96. The graph below shows the demand and supply of a product in acompetitive market:

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=.!;! $10...c.

o 10 20 30 40 50 60 70 BO 90 100Quantity per period

Suppose that this graph represents a polluting industry and the govenunent wishes to decrease its output by10 units. Which of the following will produce this result?

a) imposing an excise tax of$2b) imposing an excise tax oUIc) granting a subsidy of$2 to producersd) granting a subsidy oUI to producerse) granting a subsidy oU2 to consumers

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97. Refir to the diagram below:

$200

180

160

140

120

100

80

60

40

20

o 20 40 60 80 100 120

What is the value of the per unit external benefit in this market?a) $25b) $50c) $75

d) $100e) $20

98. Refir to the diagram below that shows the demand by polluters to discharge waste into a particular lake.

"=S $1000...i!i gOO11:I

i 800c::= 700G:I;- 600.:c: 500

40U300

200100

o 2000 4000 6000 8000 10000Quantity Ofpollutants per period

Suppose that initially there is no fee charged for releasing pollutants into this lake. If the authorities wishedto reduce the amount of pollutants by 50%, what fee should they charge?

a) 0 d) $700b) $500 e) it depends on the supplyc) $600

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99. All of the following except one are examples of market failures. Which is the exception?a) Competitive markets do not result in an equitable distribution of incomes and wealth.b) Competitive markets do not ensure the economy will be stable.c) Competitive markets do not ensure that competition will continue.d) Competitive markets do not ensure that individuals get the type of jobs they would like.e) Competitive markets do not take externalities into consideratioo.

100. All of the following except one are benefits of perfectly competitive markets. Which is the exception?a) Competitive markets promote personal economic freedom.b) Competitive markets eliminate externalities.c) Ignoring externalities, competitive markets are productively efficient.d) Competitive markets are allocatively efficient.

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