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Econ 50 Final
final review for econ
41
Economics
05/01/2010

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Term
Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 20 bushels of corn or bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. Which of the following statements are true?
Definition

C

Neither country could gain from trade with each other because neither one has a comparitive advantage.

Term
Assume that Aruba and Iceland each has 80 labor hours available. Originially, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has comparative advantage. As a result, the total output of coolers increased by
Definition

A

20

Term
All else equal, the destruction of thousands of turkeys would cause a move from
Definition

C

from x to y.

Term
In the chapter the Power of Markets: Who feeds Paris Wheelan argues that it is more expensive to have a child today that it was 50 years ago. Why?
Definition

C

Women's wages have risen

Term
Which of the following might cause the demand curve for an inferior good to shift to the left?
Definition

C

an increase in price of a complement

Term
Which of the following is consistent with the elasticities given in table 5-2?
Definition

D

Has fewer substitutes than B.

Term
Definition
Term
As price rises from $10 to $12 the price elasticity of demand using the midpoint method is appoximately
Definition

D

0.58

Term
total surplus in a market will increase when the government
Definition

C

Removes a binding price ceiling from that market

Term
In the sudanese slave trade example what determines if the Swiss charity's policy of purchasing slaves and releasing them is beneficial?
Definition

C

the price elasticity of supply for slaves

Term
Suppose a tax of $5 per unit is imposed on this market. What will be the new equilibrium quanitity in this market?
Definition

C

between 25 and 50 units

Term
The problem with illegal markets is that
Definition

C

they cause individuals involved in the marketto invest in security (to protect their persons and goods)

Term
In the market for widgets, the supply curve is the typical upward-sloping straight line, and the
demand curve is the typical downward-sloping straight line.  The equilibrium quantity in the market
for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price
paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government
is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is
Definition

B

$125

Term
Which of the following statements is correct regarding the imposition of a tax on gasoline?
Definition

B

the incidence of the tax depends upon the price elasticities of demand and supply

Term
In the chapter why prices are good Landsburg explains that the first fundamental theorem of wellfare economics, or the invisible hand of theorum means
Definition

C

that individual rationality, competition and prices leads to efficient outcomes

Term
in botswana having an additional sexual partner increases the 10 year mortality risk of AIDS by 3%.
Economists would predict that people have fewer sexual partners but recent studies suggest this is not
the case. What is the explanation for this finding given in class?
Definition

C

the malaria risk in Africa is quite high

Term
Refer to Figure 7. The increase in total surplus resulting from trade is
Definition

C

$75, since consumer surplus increases by $240 and produces surplus falls by $165

Term
In the chapter incentives matter wheelan argues that fast-food resaurants' policies of given customers who are not offered a reciept a free meal are in fact designed to
Definition

B

police employees

Term
In the chapter Trade and Globalization Wheelan argues sweatshops are
Definition

C

Are better than the next best employment opportunity in poor countries

Term
 In the chapter Who Pays for Your Coffee?, Harford explains the difference between the Farragut West
Starbucks and doctors is that
Definition

B

both earn economic rents from scarcity dut doctors do so by rent seeking.

Term
The diamond water paradox refers to the fact that water has a lower price than diamonds. The
paradox is resolved when one considers that
Definition

B

water is more plentiful than diamonds and hence the last unit comsumed has a lower marginal value

Term
According to Wheelan why are mobile homes more common than pricate homes on American Indian Reservations?
Definition

C

Land is held collectively

Term
Refer to Figure 10-5. Which of the following statements is correct?
Definition

C

The marginal cost of the negatice externality is measured by P3-P1

Term
A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality then the
Definition
supply curve would shift to the right
Term
Refer to Figure. Which of the following statements is correct?
Definition

A

To induce firms to internalize the externality in this market, the government should impose a tax measured by P2-P0.

Term

Which of the following is a disadvantage of government provision fo a public good such as national defense?

(i) the gov't does not know the exact willingness of consumers to pay for the public good

(ii) the free-rider problem is more likely to occur when the goverment provides a public good than when the private sectore provides a public good.

(iii) taxpayers do not agree on the optimal quantity of the public good that the government should provide

Definition

C

 

(i) and (iii) only

Term

Refer to figure. Which of the following is true of the production function (not pictured) that underlies this total cost function?

(i) total output increases as the quanitity of inputs increases but at a decreasing rate

(ii) marginal product is diminishing for all loeevels of input usage

(iii) the slope of the production function decreases as the quantity of inputs increases

Definition

D

(i), (ii), and (iii)

Term
According to the Coase theorem, what is needed to interalize externalities?
Definition

B

Well defined property rights and low transactions costs

Term
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of ouput are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when 6 units are produced?
Definition

D

$35

Term
When marginal cost is rising, average variable cost
Definition

D

could be rising or falling

Term
Which of the following statements is correct?
Definition

D

Only for competitive firms does average revenue equal marginal revenue.

Term
Why are bonds generall considered less risky to their owners than the owners of stocks?
Definition

C

in the event of default, bond holders are compensated before shareholders

Term
Laura is a gourmet chef who runs a small catering business ina competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should
Definition

B

Make fewer than 20 wedding cakes per month

Term
Refer to table 14-6. At what quantity does John's Vineyard maximize profits?
Definition

B

6

Term
A profit-maximizingfirm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's ...
Definition

D

All of the above

Term
Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $250 economic profit in the short run. What is the current market price?
Definition

C

$11.

Term
In the short run, there are 500 identical firms in a competitive market. The firms do not sue any resources that available in limited quantities, and each of them has the following cost structure:
Definition

C

horizontal price at $5

Term

which of the following statements is correct for a monopolist?

(i) the firm maximizes profits by equating marginal revenue with marginal cost

(ii) the firm maximizes profits by equating marginal revenue with marginal cost

(iii) demand equals marginal revenue

(iv) average revenue equals price

Definition

B

(i) and (iv) only

Term
A monopolist has the fixed costs of $60 and has a constant marginal cost if $15. What is the profit maximizing level of production?
Definition

C

4 units

Term
Refer to Figure 15-7. What area represents the total surplus lost due to monopoly pricing?
Definition
B the triangle 1/2(F-D)x(B-A)
Term
In class I suggested that shopping malls are a solution to the fact that department stores generate a
Definition

B

positive externality in production