Fall 2019 Final Exam with key

Econ 101 (A4) Fall 2019 Final Examination. This is Version #1, special code "123." This exam has 78 MC questions. You have 2.50 hours. Good Luck Multiple Choice Identify the choice that best completes the statement or answers the question. 1. What happens when government policies are being designed? a. There is usually a tradeoff between equity and efficiency. b. Equity and efficiency goals are usually independent of each other. c. Equity can usually be achieved without an efficiency loss. d. Increasing efficiency usually results in more equity. 2. What does making decisions “at the margin” mean? a. that people make those decisions that do not impose a marginal cost b. that people evaluate how easily a decision can be reversed if problems arise c. that people compare the marginal costs and marginal benefits of each decision d. that people always calculate the marginal dollar costs for each decision 3. Which of the following is an example of a positive statement? a. Prices rise when the government prints too much money. b. If welfare payments increase, the world will be a better place. c. Inflation is more harmful to the economy than unemployment. d. The benefits to the economy of improved equity are greater than the costs of reduced efficiency. 4. What are tariffs and quotas? a. policies that restrict trade among nations b. instruments implemented to increase trade efficiency c. measures endorsed by almost all economists d. policies meant to improve the well-being of consumers 5. What should a country do if it has a comparative advantage in a product? a. It should import that product. b. It should export that product. c. It should keep the product for domestic use since it is relatively inexpensive to produce. d. It should lower the costs of production until realizing an absolute advantage. 6. Which of the following would NOT occur if each person specializes in the good for which they have a comparative advantage? a. Each person’s production possibilities frontier will shift outward. b. Total production in the economy will increase. c. Everyone can be better off with specialization and trade. d. The size of the economic pie will increase. 7. Suppose roses are currently selling for $40 per dozen. The equilibrium price of roses is $30 per dozen. What would we expect? a. a shortage to exist and the market price of roses to increase b. a shortage to exist and the market price of roses to decrease c. a surplus to exist and the market price of roses to increase d. a surplus to exist and the market price of roses to decrease 8. Suppose that the number of buyers in a market decreases and a technological advancement occurs. What would we expect to happen in the market? a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous. b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous. c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. d. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

9. There are very few, if any, good substitutes for motor oil. What does this imply? a. The supply of motor oil would tend to be price elastic. b. The demand for motor oil would tend to be price elastic. c. The demand for motor oil would tend to be price inelastic. d. The demand for motor oil would tend to be income elastic. 10. You are in charge of the local city-owned golf course. You need to increase the revenue generated by the golf course in order to meet expenses. The mayor advises you to increase the price of a round of golf. The city golf course manager recommends reducing the price of a round of golf. What is the reason for their disagreement? a. The mayor thinks demand is elastic and the city golf course manager thinks demand is inelastic. b. Both the mayor and the city golf course manager think that demand is elastic. c. Both the mayor and the city golf course manager think that demand is inelastic. d. The mayor thinks demand is inelastic and the city golf course manager thinks demand is elastic. Figure 6-2 11. Refer to Figure 6-2. If the government imposes a binding price ceiling of $8.00 in this market, what is the result? a. a surplus of 20 units b. a surplus of 40 units c. a shortage of 20 units d. a shortage of 40 units 12. Over time, what happens to housing shortages caused by rent control? a. They increase, because the demand and supply curves for housing are more elastic in the long run. b. They increase, because the demand and supply curves for housing are more inelastic in the long run. c. They decrease, because the demand and supply curves for housing are more inelastic in the long run. d. They decrease, because the demand and supply curves for housing are more elastic in the long run. 13. What will happen if a newly imposed minimum wage is set above the equilibrium wage in a labour market? a. The equilibrium wage in the market will rise. b. Every worker who is earning a wage below the minimum will be better off. c. Some workers will get a raise and some workers will lose their jobs. d. Workers earning more than the minimum wage will be worse off.

18. Refer to Figure 8-4. Which area represents consumer surplus before the tax was levied? a. A b. A +B c. A + B + C d. D + E + F Figure 9-6 19. Refer to Figure 9-6. How many wagons would this country import or export? a. export 20 wagons b. import 20 wagons c. import 30 wagons d. import 50 wagons 20. Refer to Figure 9-6. Without trade, what would consumer surplus be? a. $210.50 b. $245.50 c. $367.50 d. $421.00 21. Which of the following actions should government take in order to internalize externalities? a. Government should tax goods with negative externalities and subsidize goods with positive externalities. b. Government should tax goods with either positive or negative externalities. c. Government should subsidize goods with either positive or negative externalities. d. Government should tax goods with positive externalities and subsidize goods with negative externalities. 22. According to the Coase theorem, under which conditions can private parties solve the problem of externalities? a. if the cost of bargaining is small b. if the initial distribution of rights favours the person being adversely affected by the externality c. if the number of parties involved is sufficiently large d. if the number of parties involved is sufficiently small 23. What do goods that are rival in consumption include? a. both natural monopolies and public goods b. both public goods and common resources c. both common resources and private goods d. both private goods and natural monopolies

24. To increase safety at a bad intersection, you must decide whether to install a traffic light in your home town at a cost of $10 000. If the traffic light reduces the risk of fatality by 0.5 percent and the value of a human life is about $10 million, what should you do? a. You should install the light because the expected benefit of $50 000 is greater than the cost. b. You should install the light because the expected benefit of $20 000 is greater than the cost. c. You should not install the light because the expected benefit of $10 000 is only equal to the cost. d. You should not install the light because the expected benefit of $5000 is less than the cost. 25. Which of the following costs would be regarded as an implicit cost? a. the cost of accounting services b. the opportunity cost of financial capital that has been invested in the business c. the cost of compliance with government regulation d. all costs that involve outlays of money by the firm 26. Suppose adding another unit of labour leads to an increase in output that is smaller than increases in output that resulted from adding previous units of labour. What property does this suggest? a. diminishing labour b. negative marginal labour c. diminishing marginal product d. negative marginal product 27. Why is average total cost very high when a small amount of output is produced? a. Average variable cost is high. b. Average fixed cost is high. c. Marginal cost is high. d. Marginal cost is low. Table 14-3 Quantity Total Revenue Total Cost 0 $0 $4 1 20 14 2 40 26 3 60 40 4 80 56 5 100 74 6 120 94 7 140 116 8 160 140 9 180 166 28. Refer to Table 14-3. If the firm finds that its marginal cost is $18, what should it do? a. It should increase production to maximize profit. b. It should increase the price of the product to maximize profit. c. It should increase the marginal revenue of the product to maximize profit. d. It should advertise to attract additional buyers to maximize profit.

35. Why do natural monopolies differ from other forms of monopoly? a. They are not subject to barriers to entry. b. They are not regulated by government. c. They generally don’t make a profit. d. They are generally not worried about competition. 36. Consider the following: The profit-maximizing price charged for goods produced is $16. The intersection of the marginal-revenue and marginal-cost curves occurs where output is 10 units and marginal cost is $8. Average total cost for 10 units of output is $6. What is the monopolist’s profit under these conditions? a. $20 b. $80 c. $100 d. $160 Figure 15-2 The figure below reflects the cost and revenue structure for a monopoly firm. 37. Refer to Figure 15-2. Which curve depicts the marginal-cost curve for a monopoly firm? a. A b. B c. C d. D 38. Which of the following is a characteristic of a monopolistic competitive market? a. It has some features of monopoly and some features of competition. b. It has one large, dominant firm and many other smaller firms. c. It is very difficult to enter. d. It sells homogeneous products. 39. A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following attributes? a. Average revenue exceeds marginal revenue. b. Marginal revenue exceeds average revenue. c. Average revenue is equal to marginal revenue. d. Total revenue is maximized along with profit. 40. If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium? a. an increase in demand b. a decrease in demand c. a downward shift in their marginal-cost curve d. an upward shift in their marginal-cost curve

Figure 15-3 The figure below reflects the cost and revenue structure for a monopoly firm. 41. Refer to Figure 15-3. What is a profit- maximizing monopoly’s total cost? a. P 0  Q 1 b. P 0  Q 2 c. P 0  Q 3 d. ( P 1 – P 0 )  Q 2 Figure 15-6 42. Refer to Figure 15- 6. What is the consumer surplus under the social planner’s outcome? a. $1000 b. $1125 c. $2000 d. $2250

49. When firms sell highly differentiated consumer goods, what is one significant cost to all firms likely to be? a. advertising b. fixed costs c. intermediate materials d. taxes and regulation 50. "In a long-run equilibrium, price is equal to average total cost." To which markets does this statement apply? a. competitive markets only b. competitive and monopolistically competitive markets c. competitive and monopoly markets d. monopolistically competitive and monopoly markets 51. Given that there are approximately 12 companies currently selling cars in Canada, what is the car market classified as? a. perfectly competitive b. monopolistically competitive c. oligopolistic d. monopoly 52. Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together, what results? a. They have incentives to cheat. b. Each firm's profit ends up being zero. c. Society is worse off. d. Collusion is necessary. 53. Assuming that oligopolists do not have the opportunity to collude, once they have reached the Nash equilibrium, what actions will they take next? a. It is generally in their best interest to raise the price of the product. . b. It is generally in their best interest to supply less to the market. c. It is generally in their best interest to leave their quantities supplied unchanged. d. It is generally in their best interest to lower the price of the product. 54. How does equilibrium quantity in markets characterized by oligopoly compare with that in monopolies and perfectly competitive markets? a. It is higher than in monopoly markets and higher than in perfectly competitive markets. b. It is higher than in monopoly markets and lower than in perfectly competitive markets. c. It is lower than in monopoly markets and higher than in perfectly competitive markets. d. It is lower than in monopoly markets and lower than in perfectly competitive markets. 55. As the number of firms in an oligopolistic market grows larger, what does the price approach? a. average total cost b. marginal cost c. fixed cost d. the monopoly price 56. What does the prisoners' dilemma provide insights into? a. the difficulty of maintaining cooperation b. the benefits of avoiding cooperation c. the benefits of government ownership of monopoly d. the ease with which oligopoly firms maintain high prices 57. Given that wheat is an important ingredient in bread, what can we say about the demand of wheat? a. The demand of wheat is derived from consumers’ choices, which determine the demand for bread. b. The demand for wheat is derived from firms’ choices, which determin e the supply of bread. c. The demand for wheat and the demand for bread are both derived demands. d. Neither the demand for wheat nor the demand for bread is a derived demand.

58. How is the value of the marginal product of labour calculated? a. by multiplying the price of output by the quantity of labour b. by multiplying the price of output by the marginal product of labour c. by multiplying the wage by the quantity of labour d. by multiplying the wage by the marginal product of labour 59. Typically, as a firm hires additional workers, what happens to the marginal product of labour and the value of the marginal product of labour? a. The marginal product of labour and the value of the marginal product of labour both decrease. b. The marginal product of labour stays constant, and the value of the marginal product of labour decreases. c. The marginal product of labour decreases, and the value of the marginal product of labour stays constant. d. The marginal product of labour decreases, and the value of the marginal product of labour increases. 60. Which of the following events could decrease the demand for labour? a. an increase in migrant workers b. an increase in the marginal productivity of workers c. a decrease in demand for the final product produced by labour d. a decrease in the labour supply 61. Which of the following events would NOT shift the labour supply curve? a. changes in the number of women willing to work b. immigration of workers c. changing attitudes towards work d. increases in worker productivity 62. What is a market in which there is only one buyer called? a. a monopsony b. a monopoly c. a unipoly d. an oligopsony 63. (For 63, 64, 65, 66) Assume the existence of a competitive industry with 50 firms. Each firm has: TC(Q f ) = 200 + 60 Q f + 0.5 (Q f ) 2 MC (Q f ) = 60 + Q f You will need to find the firm-level and market supply curves. Demand is P = 210 – 0.01 Q Equilibrium P e and Q e are: (P,Q) a. ($160, 5,000) c. ($80, 2,000) b. ($37.5, 3,750) d. ($160, 4,800) 64. Find firm profit in the above equilibrium: a. $5,000 c. zero b. $4,800 d. $16,000 65. For each firm, what quantity minimizes average costs? a. 30 c. 80 b. 100 d. 20 66. How many firms would serve this market in a LT equilibrium? a. 50 c. 650 b. 100 d. 130

75. (75, 76, 77, 78) Assume a competitive industry in both output and the only input, labour. Each firm has Q = 400 L f – L f 2 MP L = 400 – 2 L f Assume there are 1,000 industry-specific workers who will work at any offered wage. The industry has 20 firms. Assume that firms will pay a wage equal to the workers’ value marginal product of labour. The price of a unit of output is $4.00 What are L f and firm revenue? a. (70, $50,000) c. (50, $70,000) b. (50, $60,000) d. (100, $100,000) 76. What is total industry profit in the above question? a. $10,000 c. $1,400,000 b. $200,000 d. $zero 77. Now assume that the number of firms drops to 10. How much extra profit does each firm now earn? a. $30,000 c. $10,000 b. $40,000 d. $20,000 78. Recall that welfare in this model is the sum of profits and wages paid. What is the loss of welfare in going from 20 to 10 firms? a. $100,000 c. $300,000 b. $200,000 d. $400,000

Econ 101 (A4) Fall 2019 Final Examination. This is Version #1, special code "123." This exam has 78 MC questions. You have 2.50 hours. Good Luck Answer Section MULTIPLE CHOICE 1. ANS: A BNK: Chapter 1 — Ten Principles of Economics 2. ANS: C BNK: Chapter 1 — Ten Principles of Economics 3. ANS: A BNK: Chapter 2 — Thinking Like an Economist 4. ANS: A BNK: Chapter 2 — Thinking Like an Economist 5. ANS: B BNK: Chapter 3 — Interdependence and the Gains from Trade 6. ANS: A BNK: Chapter 3 — Interdependence and the Gains from Trade 7. ANS: D BNK: Chapter 4 — The Market Forces of Supply and Demand (PART 1) 8. ANS: B BNK: Chapter 4 — The Market Forces of Supply and Demand (PART 1) 9. ANS: C BNK: Chapter 5 — Elasticity and Its Application (PART 1) 10. ANS: D BNK: Chapter 5 — Elasticity and Its Application (PART 1) 11. ANS: C BNK: Chapter 6 — Supply, Demand, and Government Policies 12. ANS: A BNK: Chapter 6 — Supply, Demand, and Government Policies 13. ANS: C BNK: Chapter 6 — Supply, Demand, and Government Policies 14. ANS: B BNK: Chapter 7 — Consumers, Producers, and the Efficiency of Markets 15. ANS: B BNK: Chapter 7 — Consumers, Producers, and the Efficiency of Markets 16. ANS: D BNK: Chapter 14 — Firms in Competitive Markets (PART 1) 17. ANS: B BNK: Chapter 8 — Application: The Costs of Taxation 18. ANS: A BNK: Chapter 8 — Application: The Costs of Taxation 19. ANS: D BNK: Chapter 9 — Application: International Trade 20. ANS: C BNK: Chapter 9 — Application: International Trade 21. ANS: A BNK: Chapter 10 — Externalities 22. ANS: A BNK: Chapter 10 — Externalities 23. ANS: C BNK: Chapter 11 — Public Goods and Common Resources 24. ANS: A BNK: Chapter 11 — Public Goods and Common Resources 25. ANS: B BNK: Chapter 13 — The Costs of Production 26. ANS: C BNK: Chapter 13 — The Costs of Production 27. ANS: B BNK: Chapter 13 — The Costs of Production 28. ANS: A BNK: Chapter 14 — Firms in Competitive Markets (PART 1) 29. ANS: C BNK: Chapter 14 — Firms in Competitive Markets (PART 1) 30. ANS: B BNK: Chapter 15 — Monopoly 31. ANS: C BNK: Chapter 14 — Firms in Competitive Markets (PART 1) 32. ANS: A BNK: Chapter 14 — Firms in Competitive Markets (PART 1) 33. ANS: D BNK: Chapter 14 — Firms in Competitive Markets (PART 1) 34. ANS: B BNK: Chapter 14 — Firms in Competitive Markets (PART 1) 35. ANS: D BNK: Chapter 15 — Monopoly 36. ANS: C BNK: Chapter 15 — Monopoly 37. ANS: C BNK: Chapter 15 — Monopoly 38. ANS: A BNK: Chapter 16 — Monopolistic Competition 39. ANS: A BNK: Chapter 16 — Monopolistic Competition 40. ANS: B BNK: Chapter 16 — Monopolistic Competition