EC101 EE Final Exam December 16, 2013 Version 01

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p. 1 v. 01
EC101F13 EE Final Exam v01
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p. 2 v. 01
Figure DSH. The graph below pertains to the demand
Ior paper at universities.
1. See Figure DSH. An increase in the price oI paper
would cause a move Irom
a. D
B
to D
A
.
b. y to x.
c. x to y.
d. D
A
to D
B
.
2. See Figure DSH. Suppose buyers expect the price oI
paper to decrease next month because oI cheap paper
imports Irom Canada. Then there would be a move
this month Irom
a. x to y.
b. y to x.
c. D
B
to D
A
.
d. D
A
to D
B
.
3. See Figure DSH. An increase in the use oI laptop
computers Ior note-taking would cause a move Irom
a. x to y.
b. D
A
to D
B
.
c. D
B
to D
A
.
d. y to x.
4. II the price elasticity oI demand Ior a good is 3, then
a 5 percent increase in price results in a
a. 5 percent decrease in the quantity demanded.
b. 1.67 percent decrease in the quantity
demanded.
c. 15 percent decrease in the quantity demanded.
d. 0.6 percent decrease in the quantity demanded.
5. A market supply curve summarizes inIormation about
a. how much producers will sell in the
marketplace.
b. the method oI production.
c. the quantity sold.
d. how much all producers would want to sell at
various prices.
Figure MPC. Consider a Iirm in a market
characterized by monopolistic competition.
6. See Figure MPC. At the proIit-maximizing output
level, how many units oI output will the Iirm in this
Iigure produce?
a. 30
b. This Iirm will choose not to produce.
c. 50
d. 100
7. See Figure MPC. At the proIit-maximizing output
level, the Iirm in this Iigure has total costs oI
approximately
a. $120.
b. $180.
c. $210.
d. $250.
8. See Figure MPC. Which oI the Iollowing will occur
in the long run in this industry?
a. This Iirm will incur losses.
b. Firms will exit this industry.
c. Firms will enter this industry.
d. This Iirm will continue to earn positive
economic proIits.
9. See Figure MPC. The line Z on the graph
a. is the long-run MR curve.
b. represents average Iixed cost.
c. would be the MR curve under perIect
competition.
d. will be the Iirm`s demand curve in the long run.
10. Consumer surplus is most likely to be a good measure
oI the consumer welIare created by a market when
a. there are many buyers in the market.
b. the distribution oI income is equitable.
c. the market is monopolistic.
d. the market is perIectly competitive.
p. 3 v. 01
Figure TXE. The graph below shows supply and
demand in a perIectly competitive market Ior trinkets.
11. See Figure TXE. II the price were 8, there would be a
a. a shortage oI 30 trinkets.
b. a surplus oI 30 trinkets.
c. a surplus oI $3.
d. a shortage oI $3.
12. See Figure TXE. When the price changes Irom 5 to
4, the elasticity oI supply is , and the elasticity oI
demand is .
a. 1, 65/25
b. 1, 25/65
c. 1, 25/65
d. 1, 65/25
Suppose now that the government imposes a $3 excise
tax on trinkets.
13. See Figure TXE. The price that buyers pay aIter the
tax is imposed is
a. $8.
b. $7.
c. $5.
d. $6.
14. See Figure TXE. The burden oI the tax on sellers is
a. $2 per unit.
b. $1 per unit.
c. $1.50 per unit.
d. The answer depends on who sends the tax to
the government.
15. See Figure TXE. How much tax revenue is generated
in the market Ior trinkets?
a. $180
b. $250
c. $150
d. The answer depends on whether the buyer or
the seller sends the tax to the government.
16. A demand curve
a. shiIts when the supply changes.
b. shiIts when the price changes.
c. shiIts when the cost oI production changes.
d. NONE oI the above
17. WeiIang works 10 hours per week at Shaw`s
Supermarket and earns $12.00 per hour. Her boss
tells her that he must cut her wage to $8.00 per hour.
WeiIang says to herselI, 'Now I will have to work
more hours each week. This implies that
a. she does not want to have more leisure as she
becomes richer.
b. leisure is an inIerior good.
c. the substitution eIIect on her demand Ior leisure
is stronger than the income eIIect.
d. the income eIIect on her demand Ior leisure is
stronger than the substitution eIIect.
Table FVC. Falda and Varick can produce both
wheat and cloth.
Quantity Produced in 1 Hour
Wheat Cloth
Falda 8 12
Varick 6 15
18. See Table FVC. Falda has an absolute advantage in
the production oI
a. wheat.
b. cloth.
c. both goods.
d. neither good.
19. See Table FVC. Falda has a comparative advantage
in the production oI
a. both goods.
b. neither good.
c. wheat.
d. cloth.
20. When the supply oI a good increases and the demand
Ior the good remains unchanged, consumer surplus
a. decreases.
b. increases.
c. may increase, decrease, or remain unchanged.
d. is unchanged.
21. Which oI the Iollowing does not contribute to product
diIIerentiation?
a. location
b. artiIicial scarcity
c. marketing
d. customer service
p. 4 v. 01
Table WCS. You have Iour extra tickets to the Iinal
World-Cup soccer game, and you have Iour Iriends
who want to go to the game. The table shows your
Iriends` willingness to pay (WTP) Ior a tickets.
Buyer WTP
Michael $600
Earvin $450
Larry $350
Charles $250
22. See Table WCS. II you decide to charge your Iriends
the same price, at which price would you make the
most money?
a. $450
b. $250
c. $600
d. $350
23. See Table WCS. You decide to be nice and give the
tickets to your Iriends Ior Iree. How much consumer
surplus will you create?
a. $600
b. $1000
c. $1650
d. $450
24. Which oI the Iollowing does NOT deIine a Nash
Equilibrium?
a. Each player chooses the best response to the
strategies oI the other players.
b. No player wants to deviate Irom his chosen
strategy when he Iinds out the strategies oI the
other players.
c. Each player chooses the best response to his
belieIs about other players, and his belieIs are
correct.
d. The payoIIs created by the strategy proIile add
up to zero.
25. A championship soccer game is broadcast on pay TV
at a price oI $20. The broadcast is
a. eIIicient because cable-TV revenue helps
soccer teams cover the high salaries oI athletes
as well as other costs.
b. ineIIicient because people with a WTP less
than $20 will not be able to watch it.
c. eIIicient because soccer teams are privately
owned businesses.
d. eIIicient because anyone with a WTP oI $20 or
more will watch it.
26. Xavi is an extremely talented soccer player with a
salary oI almost $10 million per year. What is true
about Xavi?
a. His behavior is a good example oI rent seeking.
b. Most oI his income can be explained by his
hard work.
c. Most oI his income is an economic rent to his
talent.
d. NONE oI the above
Figure DMR. The monopoly described below has
zero Iixed costs.
27. See Figure DMR. II the monopoly Iirm is not
allowed to price-discriminate, then consumer surplus
amounts to
a. $20.
b. $0.
c. $40.
d. $80.
28. See Figure DMR. II the monopoly Iirm is not
allowed to price-discriminate, then the deadweight
loss amounts to
a. $0.
b. $40.
c. $20.
d. $80.
29. See Figure DMR. II the monopoly can
price-discriminate perIectly, it`s proIits are
a. $0.
b. $20.
c. $40.
d. $80.
p. 5 v. 01
30. Farmer Jones has good land that he could rent out to
another Iarmer Ior $90,000/year. Instead, Farmer
Jones uses the land to grow tomatoes. Then,
a. his producer surplus Irom tomato growing
includes $90,000 in economic rent to his land.
b. he must be irrational.
c. by using the land Ior his own Iarm, he
sacriIices his ability to receive economic rents.
d. his use oI land will be ineIIicient.
Figure PEX. The graph below show the supply,
demand and social value oI widgets.
31. See Figure PEX. The graph indicates that widgets
a. have a negative externality.
b. have no externality.
c. have a positive externality.
d. CANNOT be determined Irom the graph
32. See Figure PEX. Which oI the Iollowing magnitudes
is constant?
a. the external beneIit oI the last widget sold
b. the private value oI the last widget sold
c. the social value oI the last widget sold
d. the private cost oI the last widget sold
33. See Figure PEX. The socially optimal output oI
widgets is
a. 0.
b. 160.
c. 280.
d. CANNOT be determined Irom the graph
34. TheIt is a Iorm oI rent-seeking, because
a. theIt is not productive.
b. a thieI cannot get any social surplus Irom stolen
goods.
c. the original owner loses consumer surplus
when his goods are stolen.
d. theIt is against the law.
35. Which oI the Iollowing is NOT true about an
unregulated market Ior health insurance?
a. People with Iull health insurance would be
likely to see the doctor more oIten than
necessary.
b. Buyers oI health insurance tend to be less
healthy than average.
c. The average price oI insurance would rise iI
everyone were required to buy health
insurance.
d. The price oI health insurance is a lot more than
the health-care costs oI the average person.
36. Governments award patents in order to
a. provide incentives Ior useIul inventions.
b. encourage basic scientiIic research.
c. prevent monopolies Irom Iorming.
d. allow Iirms to keep their technologies secret.
37. Social surplus is equal to
a. consumer surplus producer surplus.
b. consumer surplus x producer surplus.
c. value to buyers cost to sellers.
d. value to buyers proIit to sellers.
38. The marginal revenue oI a nondiscriminating
monopoly is less than the price, because
a. the Iirm must lower prices to everyone in order
to sell an additional unit.
b. antitrust laws limit revenues.
c. the Iirm must compensate Ior deadweight loss
with artiIicial scarcity.
d. the costs oI monopoly rent-seeking tend to be
high.
39. Which oI the Iollowing is NOT associated with airline
price-discrimination?
a. Airlines oIIer discounts Ior round-trip
passengers who spend Saturday night at their
destinations.
b. Airlines charge Iees Ior checked luggage and
meals on the plane.
c. Airlines do not allow ticket-holders to sell their
tickets to other people.
d. Business-class seats may be three or Iour times
the price oI economy seats.
p. 6 v. 01
40. A binding price ceiling applied to a monopoly is
likely to
a. increase the quantity supplied.
b. shiIt the demand curve Ior the monopoly`s
product to the leIt.
c. increase the price.
d. shiIt the demand curve Ior the monopoly`s
product to the right.
41. 'Beauty contests Ior mobile-phone spectrum are
associated with
a. marketing to young consumers.
b. rent-seeking.
c. allocating spectrum to cell-phone carriers
willing to pay be most Ior it.
d. the US, UK and Germany.
42. In game theory, a strategy is deIined as
a. a plan that speciIies an action Ior every
situation that could be observed.
b. any action that eIIects the players payoIIs.
c. an action chosen at random.
d. the set oI all actions that a given play is
permitted to take.
43. Which oI the Iollowing is a characteristic oI perIect
competition?
a. high prices
b. high proIits
c. good inIormation
d. a wide variety oI goods
44. The exchange oI goods or services in a Iree market is
likely to increase the welIare oI both sides because
a. in Iree markets exchange is voluntary.
b. Iree exchange eliminates poverty.
c. in Iree markets individuals tend to know the
people that they trade with.
d. the majority oI individuals in a Iree market
economy can obtain what they want.
45. You paid $10 to see a movie. HalI an hour into the
movie, you realize that it is a terrible movie and is not
going to get any better. II you are rational in the
economic sense, you should
a. stay until the end because you already paid Ior
it.
b. leave immediately and do something more
enjoyable.
c. wait another halI hour because spending $10
Ior an hour is better than spending $10 Ior halI
an hour.
d. leave immediately only iI you can get a partial
reIund oI the ticket price.
Scenario BSX. Julie is planning to open a women`s
clothing store, and Harry will open a men`s clothing
store. Each owner must choose either shopping mall A
or shopping mall B. Julie will open her store Iirst.
Harry will see where Julie`s store is located and then
open his store. The Iollowing chart represents the
actions oI the two owners. ProIits Ior each store are
in parenthesis with Julie`s proIits Iirst and Harry`s
proIits second.
46. See Scenario BSX. Julie must choose a strategy Irom
a set oI possible strategies; Harry must choose a
strategy Irom a set oI possible strategies.
a. 4; 2
b. 4; 4
c. 2; 2
d. 2; 4
47. See Scenario BSX. In subgame-perIect Nash
equilibrium, Harry will open his store
a. in a diIIerent mall Irom Julie`s.
b. in mall A no matter what Julie does.
c. in mall B no matter what Julie does.
d. in the same mall as Julie does.
48. See Scenario BSX. In subgame-perIect Nash
equilibrium, Julie will open her store
a. in mall B.
b. in both malls.
c. in mall A.
d. NONE oI the above
49. See Scenario BSX. Suppose Harry is so stubborn that
he decides to open in mall B no matter what Julie
does. Which oI the Iollowing could be true in a Nash
equilibrium that is not subgame perIect?
a. Julie never opens her store (earns 0).
b. Julie opens in mall B.
c. Julie opens in mall A.
d. NONE oI the above
p. 7 v. 01
50. Economists Irequently use game theory to analyze
a. video games like Grand TheIt Auto.
b. strategic interaction among competing Iirms.
c. team strategy in proIessional sports.
d. the distribution oI surplus under perIect
competition.
51. The Iree-rider problem reIers to the Iact that
a. airline employees have a legal right to Ily
without purchasing a ticket.
b. it is hard to make people pay Ior something that
they can use without paying.
c. public transportation always runs large deIicits.
d. the marginal cost oI allowing an additional
consumer to enjoy a pure public good is zero.
52. When prices are above marginal cost in a Bertrand
duopoly,
a. each Iirm would have an incentive to set its
price at marginal cost.
b. each Iirm would have an incentive to set its
price slightly below that oI the other Iirm.
c. a high-price Iirm would deviate to an even
higher price.
d. a low-price Iirm would have an incentive to
raise its price to that oI the high-price Iirm.
Scenario CRN. Suppose Iirms A and B Iorm a
Cournot duopoly with zero costs and market demand
Q 60 P.
53. See Scenario CRN. II Firm A decides to produce 30,
then Firm B`s best response would be to produce
a. 15.
b. 60.
c. 0.
d. 30.
54. See Scenario CRN. In Cournot equilibrium, total
output would be
a. 0.
b. 40.
c. 60.
d. 20.
55. II people stop drinking milk,
a. there would be Iewer dairy cows, because
Iarmers would have less incentive to keep
them.
b. the supply curve oI milk would shiIt out to
compensate Ior the smaller demand.
c. there would be more dairy cows, because more
calves (baby cows) would have milk to drink.
d. the supply curve oI milk would shiIt up.
56. As compared with barter, selling and buying
a. yields more useIul inIormation about market
value.
b. makes it easier to Iind trading partners.
c. requires the use oI a widely accepted medium
oI exchange.
d. ALL oI the above
Table MCB. The table below describes what happens
when two Iast-Iood chains, McAuful and Burger
Pickle advertise beeI burgers or chicken pieces. The
payoIIs (McAuful, Burger Pickle) displayed in each
cell represent the percentage increase or decrease in
proIits Ior each chain.
Burger Pickle
Beef Chicken
McAuful
Beef (+2, +1) (+6, +4)
Chicken (-1, -6) (-2, +3)
57. See Table MCB. For Burger Pickle, advertising beeI
is
a. not a strategy.
b. a dominant strategy.
c. a mixed strategy.
d. a dominated strategy.
58. See Table MCB. In Nash equilibrium,
a. McAuIul will advertise chicken and Berger
Pickle will advertise beeI.
b. both chains will advertise beeI.
c. McAuIul will advertise beeI and Berger Pickle
will advertise chicken.
d. both chains will advertise chicken.
59. See Table MCB. This game and its outcome imply
that
a. consumers have a low opinion oI McAuIul`s
chicken pieces.
b. these Iirms would be more proIitable iI they
had the same owner.
c. the Nash-equilibrium strategies are not time
consistent.
d. the managers oI the Iirms are irrational.
60. Arbitrage is likely to occur
a. when the same goods are sold at diIIerent
prices.
b. in markets Ior luxury goods.
c. when proIit margins are high.
d. NONE oI the above