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TheAceStudent:ECO365FINALEXAM2015

ECO365FINALEXAM2015
ECO365FINALEXAM2015
Question
1.Thelawofdiminishingmarginalproductivityimpliesthatthemarginalproductofavariableinput:
Isconstant
Neverdeclines
Eventuallydeclines
Alwaysdeclines
2.Supposeforeignshrimppricesdropby32percentandimportersgaina90percentmarketshare.
Fromthisinformation,whatwouldeconomistsstronglysuspectaboutthisindustry?
Foreignsellersprobablyarecolludingonpricetomaximizeprofits.
ThelargesalesofforeignersindicatetheyarebetterstrategicbusinessbargainersthanAmericans
are.
Foreignershaveacomparativeadvantageinshrimping.
Americanshaveacomparativeadvantageinshrimping.
3.Supposepeoplefreelychoosetospend40percentoftheirincomeonhealthcare,butthenthe
governmentdecidestotax40percentofthatpersonsincometoprovidethesamelevelof
coverageasbefore.Whatcanbesaidaboutdeadweightlossineachcase?
Taxingincomeresultsindeadweightloss,andpurchasinghealthcareononesowndoesntresultin
deadweightloss.
Thereisnodifferencebecausethetotalspendingremainsthesameandthehealthcarepurchased
remainsthesame.
Taxingincomeresultsinlessdeadweightlossbecausegovernmentknowsbetterwhathealthcare
coverageisgoodforsociety.
Thereisnodifferencebetweengoodsthatarepurchasedinthemarketineithercase.
4.In1997,thefederalgovernmentreinstateda10percentexcisetaxonairlinetickets.Theindustry
triedtopassonthefull10percenttickettaxtoconsumersbutwasabletoboostfaresbyonly4
percent.Fromthisyoucanconcludethatthe:
Demandforairlineticketsisperfectlyinelastic.
Supplyelasticityofairlineticketsislessthaninfinity.
Demandelasticityforairlineticketsisgreaterthanzeroinabsolutevalue.
Supplyofairlineticketsisperfectlyinelastic.
5.TherearemanyrestaurantsinthecityofRaleigh,eachoneofferingfoodandservicesthatdiffer
fromthoseofitscompetitors.Thereisalsofreeentryofsellersintothemarket,andeachseller
servesaverysmallfractionofthetotalnumberofmealsservedeachday.Therestaurantindustry
inRaleighisbestcharacterizedas:
Monopolisticallycompetitive.
Perfectlycompetitive.
Anoligopoly.
Apuremonopoly.
6.Cartelsareorganizationsthat:
Usepredatorypricingtomonopolizeindustries.
Coordinatetheoutputandpricingdecisionsofagroupoffirms.
Keepmarketscontestable.
Encouragepricewars.
7.Alexisplayinghismusicatfullvolumeinhisdormroom.Theotherpeoplelivingonhisfloor
foundthistobeanuisance,butAlexdoesntcare.Alexsmusicplayingisanexampleof:
Positiveexternality
Paretoexternality
Negativeexternality
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Normativeexternality
8.ManycallcentersthatprovidetelephonecustomerservicesforU.S.companieshavebeen
establishedinIndia,butfewornonehavebeenestablishedinChina.Why?
Chinalacksthepoliticalinfrastructuretosupportcallcenters.
ChineselaborlacksthespecificlanguageskillsneededtomakecallcentersprofitableinChina.
IndianlaborcostsareequaltoChineselaborcosts.
ChinaisatamoreadvancedstageofeconomicdevelopmentthanIndia.
9.Mr.Woodwardscabinetshopisexperiencingrapidgrowthinsales.Assaleshaveincreased,Mr.
Woodwardhasfounditnecessarytohiremoreworkers.However,hehasobservedthatdoublingthe
numberofworkershaslessthandoubledhisoutput.Whatisthelikelyexplanation?
Thelawofdemand
Thelawofsupply
Thelawofdiminishingmarginalproductivity
Thelawofdiminishingmarginalutility
10.Whichofthefollowingstatementsistrueaboutadownwardslopingdemandcurvethatisa
straightline?
Theslopeandelasticityarethesameatallpoints.
Theslopeandtheelasticityfallasyoumovedownthedemandcurve.
Thesloperemainsthesame,butelasticityrisesasyoumovedownthedemandcurve.
Thesloperemainsthesame,butelasticityfallsasyoumovedownthedemandcurve.
11.Microeconomicsisthestudyof:
unemployment
afirmspricingpolicies
businesscycles
inflation
12.Foramonopolist,thepriceofaproduct:
Islessthanthemarginalrevenue.
Equalsthemarginalrevenue.
Exceedsthemarginalrevenue.
Equalsthemarginalcost.
13.Otherthingsheldconstantinacompetitivelabormarket,ifworkersnegotiateacontractin
whichtheemployeragreestopayanhourlyof$17.85whilethemarketequilibriumhourrateis
$16.50,the:
Supplyoflaborwilldecreaseuntiltheequilibriumwagerateis$17.85.
Quantityofworkersdemandedwillexceedthequantityofworkerssupplied.
Demandforlaborwillincreaseuntiltheequilibriumwagerateis$17.85.
Quantityofworkerssuppliedwillexceedthequantityofworkersdemanded.
14.WhenRossPerotranforpresidentasathirdpartycandidatein1992,hearguedthatfreetrade
withMexicowouldresultinmassivejoblossesintheUnitedStatesbecauseMexicanwageswere
solow.WhichofthefollowingisthebestexplanationofwhyfeweconomistsagreedwithPerot?
EconomistsdidnotbelieveanyjobswouldbelostintheUnitedStates.
AlthougheconomistsbelievedthatinsomeareastheUnitedStateswouldlosejobs,theyexpected
theUnitedStateswouldgainjobsinotherareas.
Althougheconomicspredictedthatunemploymentwouldrise,theincreasedprofitsofcorporations
wouldraisestockpricesenoughtocompensateforthelostjobs.
EconomicsbelievedthattheU.S.unemploymentwouldrise.
15.Amonopolyfirmisdifferentfromaperfectlycompetitivefirminthat:
Amonopolistsdemandcurveisperfectlyinelasticwhereasaperfectlycompetitivefirmsdemand
curveisperfectlyelastic.
Therearemanysubstitutesforamonopolistsproductwhereastherearenosubstitutesfora
competitivefirmsproduct.
Amonopolistcaninfluencemarketpricewhereasaperfectlycompetitivefirmcannot.
Acompetitivefirmhasaushapedaveragecostcurvewhereasamonopolistdoesnot.
16.Microeconomicsandmacroeconomicsare:
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Virtuallyidentical,thoughoneismuchmoredifficultthantheother.
Notrelatedbecausetheyaretaughtseparately.
Interrelatedbecausebothareoftentaughtbythesameinstructors.
Interrelatedbecausewhathappensintheeconomyasawholeisbasedonindividualdecisions.
17.Strategicdecisionmakingismostimportantin:
Competitivemarkets.
Monopolisticmarkets.
Oligopolisticmarkets.
Monopolisticallycompetitivemarkets.
18.Areductioninthesupplyoflaborwillcausewagesto:
Increaseandemploymenttoincrease.
Decreaseandemploymenttoincrease.
Decreaseandemploymenttodecrease.
Increaseandemploymenttodecrease.
19.Thebestexampleofpositiveexternalityis:
Pollution
Rollercoasterrides
Alcoholicbeverages
Education
20.Priceelasticityofdemandisthe:
Percentagechangeinpriceofthatgooddividedbythepercentagechangeinthequantityofthat
gooddemanded.
Changeinthequantityofagooddemandeddividedbythechangeinthepriceofthatgood.
Changeinthepriceofagooddividedbythechangeinthequantityofthatgooddemanded.
Percentagechangeinquantityofagooddemandeddividedbythepercentagechangeinthepriceof
thatgood.
21.Graphically,achangeinpricecauses:
bothsupplyanddemandtoshift.
thesupplycurvetoshift.
amovementalongagivensupplycurve,notashift.
thedemandcurvetoshift.
22.SupposeOPECannouncesitwillincreaseproduction.Usingsupplyanddemandanalysisto
predicttheeffectofincreasedproductiononequilibriumpriceandquantity,thefirststepistoshow
the:
supplycurveshiftingtotheleft.
supplycurveshiftingtotheright.
demandcurveshiftingtotheright.
demandcurveshiftingtotheleft.
23.TheDeBeerscompanyisaprofitmaximizingmonopolistthatexercisesmonopolypowerinthe
distributionofdiamonds.Ifthecompanyearnspositiveeconomicprofitsthisyear,thepriceof
diamondswill:
Beequaltothemarginalcostofdiamonds.
Exceedthemarginalcostofdiamondsbutequaltotheaveragetotalcostofdiamonds.
Exceedboththemarginalcostandtheaveragetotalcostofdiamonds.
Beequaltotheaveragetotalcostofdiamonds.
24.Thetheorythatquantitysuppliedandpricearepositivelyrelated,otherthingsconstant,is
referredtoasthelawof:
opportunitycost
demand
supply
profitmaximization
25.Oligopolyisprobablythebestmarketfortechnologicalchangebecause:
Researchanddevelopmentoccursonlyifgovernmentsubsidizessuch?activity,andgovernment
tendstosubsidizeoligopolies.
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Thetypicaloligopolykeepspriceveryclosetoaveragetotalcostbecauseitfearstheentryofnew
rivalsifitsprofitsareexcessivelyhigh.
Thetypicaloligopolylacksthefundstocarryoutresearchanddevelopmentandthereforewilluse
basicresearchfromuniversities.
Thetypicaloligopolyhasthefundstocarryoutresearchanddevelopmentandbelievethatits
competitorsareinnovating,whichmotivatesittoconductresearchanddevelopment.
26.In2011,theDepartmentofJusticesuedAT&Ttoblockitsmergerwiththecellphoneservice
providerTMobile.Todefenditselfagainstthecharge,AT&Targuedthatthe:
Mergerwouldimproveandexpandcellularservicetoconsumers.
Governmenthadnoauthoritytoblockmergersinthetelephoneindustry.
Combinedcompanycouldraiseprices,allowingittosurviveinarapidlychangingmarket.
Governmenthadguaranteeditexclusivecontrolofcellphoneservice.
27.Supposethatcollegetuitionishigherthisyearthanlastandthatmorestudentsareenrolledin
collegethisyearthanlastyear.Basedonthisinformation,wecanbestconcludethat:
thelawofdemandisinvalid.
thedemandforacollegeeducationispositivelysloped.
thissituationhasnothingtodowiththelawofdemand.
despitetheincreaseinprice,quantitydemandedroseduetosomeotherfactorschanging.
28.Atonetime,sealionsweredepletingthestockofsteelheadtrout.Oneideatoscaresealions
awayfromtheWashingtoncoastwastolaunchfakekillerwhales,whicharepredatorsofsealions.
Thecostofmakingthefirstwhaleis$16,000($5,000formaterialsand$11,000forthemold).The
moldcanbereusedtomakeadditionalwhales,andsoadditionalwhalescost$5,000each.Based
onthesenumbers,theproductionoffakekillerwhalesexhibits:
Decreasingreturnstoscale
Increasingreturnstoscale
Diminishingmarginalproduct
Constantreturnstoscale
29.Aperfectlycompetitivefirmfacingapriceof$50decidestoproduce500widgets.Itsmarginal
costofproducingthelastwidgetis$50.Ifthefirmsgoalistomaximizeprofit,itshould:
Shutdown
Continueproducing500widgets
Producemorewidgets
Producefewerwidgets
30.Using100workersand10machines,afirmcanproduce10,000unitsofoutputusing250
workersand25machines,thefirmproduces21,000unitsofoutput.Thesefactsarebestexplained
by:
Economiesofscale
Diseconomiesofscale
Economiesofscope
Diminishingmarginalproductivity
ECO365FINALEXAM2015

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