Posted: December 20th, 2021

ECON 201 FINAL EXAM MCQs

1. What is total producer surplus
in the market depicted below?
A. $100
B.$125
C. $200
D. $625

2. In the absence of market
failures (e.g. externalities or imperfect competition) the market equilibrium
is considered efficient because:
A. prices are low.
B. the price consumers pay equals
the profit producers receive.
C.no more trades
remain that benefit some without harming others.
D. it assures that both the buyer
and seller earn equal surplus.
3. The market equilibrium is only
efficient when
A. buyers and sellers each earn
equal surplus from the transaction.
B. consumer surplus and producer
surplus are both zero.
C.all relevant
costs, including those imposed on others, are accounted for.
D. income is distributed
equitably.
4. Which of the following statements
expresses the justification for making efficiency the first goal of economic interaction?
A. Efficiency gives the poor an
incentive to improve their economic status.
B. Efficiency guarantees that the
poor are always made better off.
C. People are not really
concerned about the problems of the poor.
D.Efficiency
maximizes total economic surplus and thereby allows other social goals to be
more fully achieved.

5. Suppose that jeans initially
sell for $60 in the market depicted above. If sellers lower their price to $40,
it
would create an extra __ of
economic surplus. Thus, selling jeans for $60 is __.
A.$160;
inefficient
B. $80; efficient
C. $80; the equilibrium price
D. $160; efficient
Suppose that a firm uses water
from a nearby river to cool its machinery and returns the water to the river
several degrees warmer, leading
to a decline in the fish population downstream from the firm.
6. The damage to the downstream
fish is a(n)
A.relevant cost of
production to society.
B. relevant cost of production only
if the firm is charged a fine for the damage done.
C. relevant cost of production
only if there are commercial fishing activities downstream.
D. implicit cost of production
which the firm will take into account in determining profit maximizing output.
7. If the firm does not have to
pay for the damage to the downstream fish population, the equilibrium quantity
in the market for the firm’s
output will be:
A. efficient
B. inefficiently low
C.inefficiently
high
D. profitable
8. Suppose that the government
fines the firm an amount equal to the damage imposed on the fish for each
degree increase in the
temperature of water in the river. This government action
A. reduces efficiency in the
market.
B. increases dead weight loss.
C.increases
efficiency in the market.
D. violates the definition of
efficiency.
9. The cumulative difference
between the price producers actually receive for their output and their
reservation
price (i.e. their marginal cost
of production) is:
A.producer surplus.
B. deadweight loss.
C. total economics surplus.
D. consumer surplus.
10. Compared to the first come,
first served allocation scheme airlines used in the past, the voluntary
compensation scheme now in place
A. discriminates against the
poor.
B. improves efficiency for only
the wealthy.
C. tricks the poor into
unnecessarily delaying their travel.
D.improves
efficiency for all travelers.
11. Except in the extreme cases
of perfectly inelastic or perfectly elastic demand and/or supply curves, where
will the burden of a per unit (ad
valorem) taximposed on sellersfall?
A. Equally on consumers and
producers.
B.Partially on
consumers and partially on producers.
C. Entirely on producers.
D. Entirely on consumers.
12. Except in the extreme cases
of perfectly inelastic or perfectly elastic demand and/or supply curves, where
will the burden of a per unit (ad
valorem) taximposed on consumersfall?
A. Equally on consumers and
producers.
B.Partially on
consumers and partially on producers.
C. Entirely on producers.
D. Entirely on consumers.
13. The more inelastic is demand,
the ______ the burden of the tax borne by ______.
A. smaller; consumers
B.larger;
consumers
C. larger; producers
D. smaller; consumers and
producers
14. If a per unit tax is imposed,
the more inelastic is demand, the
A.smaller the
deadweight loss.
B. larger the deadweight loss to
producers.
C. less likely the deadweight
loss will be affected.
D. larger the deadweight loss.
Suppose that the Pennsylvania
state legislature is considering increasing the sales tax on two different
commodities: prescription drugs
and restaurant meals. The price elasticity of demand for prescription drugs is
estimated to be -0.08 and the
price elasticity of demand for restaurant meals is estimated to be -0.95.
15. If the legislature’s primary
goal in increasing taxes is to raise money most efficiently, it should tax
A. both prescription drugs and
restaurant meals equally.
B.prescription
drugs because demand is relatively more price inelastic than for meals.
C. restaurant meals because they
are not a necessity.
D. only those prescription drugs
that are not life-saving.
16. In a perfectly competitive
industry, economic profits
A. include only explicit costs.
B. equal accounting profits plus
implicit costs.
C.serve to
motivate entry or exit.
D. are always greater than
accounting profits.

17. Refer to the figure above. If
a tax of one dollar per unit were imposed on the producers of this commodity,
what would happen to the price
consumers would pay in the market?
A. increase by exactly one dollar
B.increase by less
than one dollar
C. increase by more than one
dollar
D. remain the same as the price
before the tax
18. Refer to the figure above.
The reason that the tax burden is _____________ is because _____________.
A. borne mostly by the producers;
it is imposed by law on producers
B. borne mostly by consumers;
consumer demand is relatively more elastic at the market price
C.borne mostly by
consumers; consumer demand is relatively less elastic at the market price
D. shared approximately equally;
supply and demand are equally elastic at the market price
19. Suppose that instead of
taxing the producers, a tax of an equal dollar amount per unit were imposed on
consumers in the market shown
above. Relative to the tax on producers,
A. the tax on consumers would
generate more deadweight loss.
B. the burden of the tax on
consumers would be more equally shared between consumers and producers.
C. consumers would bear a greater
share of the tax burden.
D.the effect on
deadweight loss and tax burdens would be the same.
20. Demand for cigarettes is
relatively price inelastic among adults, but relatively price elastic for
teenagers.
Therefore, a tax on cigarettes
will:
A. not raise very much tax
revenue.
B.generate more
tax revenue from adults and have a greater effect on reducing the number of
cigarettes smoked
by teenagers.
C. have a greater effect on the
number of cigarettes smoked by adults than by teenagers.
D. generate more tax revenue from
teenagers than from adults.
21. Refer to the figure above. A
tax on Commodity A will generate _________ deadweight loss relative to an
equivalent tax on Commodity B.
A. more
B.less
C. equal
D. zero
22. If a firm is earning zero
economic profits
A. its revenues are sufficient to
pay explicit costs, but not implicit costs.
B. the owner will not be able to
pay himself or herself a salary.
C. it will shut down in the long
run, but will continue to operate in the short run.
D.the owners are
earning a return on their time and investment that is equal to the opportunity
costs of that time
and investment.
23. If all firms in a perfectly
competitive industry are earning positive economic profits, one would expect
that,
over time, the number of firms
will _______ and the market price will _____.
A.rise; fall
B. fall; rise
C. rise; rise
D. rise; stay the same
24. In a perfectly competitive
industry over the long run,
A. economic profits tend to
persist.
B. the number of firms in an industry
grows.
C. economic losses tend to
persist.
D.economic profits
and losses are driven towards zero by entry and exit.
25. An implication of entry and
exit in response to the profit incentive is that, for perfectly competitive
firms,
A. no firm accepts zero economic
profits in the long run.
B. firms produce the quantity
that minimizes average variable costs in the short run.
C.firms produce
the quantity that minimizes average total costs in the long run.
D. demand is completely inelastic
26. Mary Jane is willing to
baby-sit for $6 an hour. Her neighbor called and asked her to baby-sit for $8
an
hour. Mary Jane will earn
A. consumer surplus of $2.
B.economic rent of
$2
C. economic profit of $8.
D. accounting profit of $8, but
economic profit of 0.
Assume that all firms in the
industry depicted below have identical cost functions.
27. What is roughly the long-run
equilibrium price in this industry?
A. $15
B.$10.
C. $5.
D. $5 for some firms and $10 for
others.
The following graphs depict a perfectly
competitive firm and its market. Assume that all firms in this industry
have identical cost functions.
28. What is the long run
equilibrium quantity in this industry, and how many firms will there be?
A. 300 units; 10 firms
B.500 units; 20
firms
C. 700 units; 10 firms
D. 25 units; 300 firms
29. You have just won the
lottery! You may take your winnings in either a single immediate payment of
$1,000,000 or in annual payments
of $25,000 forever into the future. At what interest rate would you be
indifferent between these two
choices?
A. 4%
B. 25%
C.2.5%
D. 0.25%
Suppose that the city of Austin,
TX chooses to regulate the number of street vendors operating near the
University of Texas by requiring
each vendor to own a permit in order to operate. The city gives permits to all
existing vendors and announces
that no new permits will ever be issued. Prior to regulation, the costs
(including
implicit costs) of operating were
$85,000 and revenues were $150,000, and these costs and revenues are
expected to persist indefinitely
for all vendors. Once distributed, the city ordinance allows the permits to be
bought and sold without
restriction. The permits have no expiration date. The interest rate for the
indefinite
future is 10 percent.
30. Prior to this ordinance, how
much were street vendors earning?
A. Economic profits of zero.
B. Accounting profits of $65,000.
C. A normal profit.
D.Economic profits
of $65,000.
31. At what price will existing
street vendors be willing to sell their permits?
A.$650,000.
B. $150,000.
C. $65,000.
D. $6,500.
32. Generic Brands is expected to
earn a profit of $1 million each year forever into the future. If the interest
rate
is 5%, and there are 20,000
shares of company stock outstanding, how much will investors be willing to pay
for
a single share of Generic Brands
stock?
A. $50
B. $100
C. $500
D.$1000
33. The efficient-markets
hypothesis states that
A. all markets produce an
efficient outcome.
B. production is always
technically efficient.
C.all relevant
information about a company’s current and future earnings prospects is embodied
in its stock
price.
D. most of the relevant information
about a company’s current and future earnings prospects is embodied in its
stock price.
34. The existence of a negative
externality will result in
A. a less than optimal level of
production.
B.a greater than
optimal level of production.
C. prices that are artificially
high.
D. elimination of deadweight
loss.
Taylor lives in a residential
neighborhood that prides itself on well-groomed lawns. Taylor’s neighbors find
that
the collective marginal benefit
of someone else’s well-groomed lawn is $10. Taylor, however, dislikes yard
work and receives zero net
benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn –
the cost of maintaining the lawn
is a dollar more than the benefit of having a well-groomed lawn.
35. If Taylor acts independently,
Taylor’s lawn will be __________ and total economic surplus to the
neighborhood will be __________.
A. well groomed; $10
B. well groomed; $5
C.unkempt; 0
D. unkempt; $5
36. Provided that bargaining is
costless, the Coase Theorem suggests that:
A. the rest of the neighborhood
will have to tolerate Taylor’s unkempt lawn.
B. Taylor could pay the neighbors
to stop complaining about the lawn, making everyone in the neighborhood
better off.
C.Taylor’s
neighbors could pay Taylor to have a well-groomed lawn, making Taylor and the
neighbors better
off.
D. Taylor’s neighbors could pay
Taylor to have a well-groomed lawn, making Taylor better off and the
neighbors worse off.
Curly and Moe are considering
living alone or being roommates and splitting the rent for the next twelve
months. A one bedroom, one bath
apartment is $500 per month while a two bedroom, one bath apartment is
$800. The one difficulty they
have is that Moe snores very loudly. Curly estimates the cost of poor sleep due
to
Moe’s snoring at $150 per month.
Moe could obtain a snore-eliminating device for $50 per month.
37. The least costly solution to
the externality present in this situation is for
A. Curly to endure Moe’s snoring.
B. both to live alone.
C.Moe to eliminate
his snoring.
D. Moe to pay Curly for his
discomfort.
Suppose that the EPA has proposed
strict controls on the amount of sulfur that diesel fuel can contain. These
controls are designed to fully
offset the cost of pollution generated by diesel fuel vehicles. The effect of
the
regulation is estimated to
increase the equilibrium price paid by consumers for a gallon of diesel fuel by
10
cents.
38. Assuming that the supply of
diesel fuel is upward sloping and demand is downward sloping, then one can
infer that
A. the external benefit of using
diesel fuel is less than 10 cents.
B.the external
cost of using diesel fuel is greater than 10 cents.
C. the external cost of using
diesel fuel is less than 10 cents.
D. the external cost of using
diesel fuel is equal to 10 cents.
39. Refer to the figure above.
From this graph, you can infer that paper production
A. generates no externalities at
quantities less than 300 tons per day.
B.generates negative
externalities equal to approximately $50 per ton per day.
C. generates negative
externalities equal to approximately $25 per ton per day.
D. should be prohibited.
40. Refer to the figure above.
Assume that Coasian bargaining is impractical for solving the externality
problem
illustrated. The efficient
equilibrium could be achieved by
A. banning production of the
good.
B. compensating those injured by
the externality.
C.taxing the good
by an amount equal to the external cost.
D. subsidizing the good by an
amount equal to the external benefit.
41. Refer to the figure above. If
the firm were forced to pay the external cost, the firm would
A. increase the price of paper by
the full amount of the external cost.
B. be unable to increase the
price of paper, and so would bear the entire burden of the increased cost.
C. produce more paper than it
does at the private market equilibrium
D.share the burden
of the higher cost with paper consumers.
42. An imperfectly competitive
firm is one
A. that attempts but fails to
compete perfectly.
B. with the ability to set price
at any level it wishes.
C.that possesses
some degree of control over its price.
D. that faces perfectly inelastic
demand.
43. Patents and copyrights, which
act as barriers to entry and confer market power upon their owners, exist to
A. protect consumers from
imitations.
B. ensure excessive profits to
the holders.
C.protect
research, development and creative expression.
D. magnify the dominance of large
firms.
44. A firm is most likely to
experience economies of scale if it has _____ start up costs and ______
marginal
costs.
A. high; increasing
B.high; low
C. high; high
D. low; decreasing
45. When a perfectly competitive
firm sells additional output, __________, and when a monopolist sells
additional output, ___________
A.total revenues
always rise; total revenues may rise, fall, or remain unchanged.
B. total revenues remain
unchanged; total revenues always rise.
C. marginal revenues stay the
same; marginal revenues rise.
D. total revenues always rise;
total revenues always fall.
46. Refer to the figure above. At
a price of $8/unit, total revenue for a monopolist would be ____, while
marginal revenue earned from the
last whole unit sold would be ____.
A. $8; 8
B. $24; 8
C. $32; 4
D.$40; 0
47. If the demand curve facing a
monopolist is P = 50 – 10*Q, at what quantity are marginal revenues zero?
A. 50
B. 10
C. 5
D.2.5
48. The reason that economists
consider monopoly to be socially undesirable is that monopolists
A. always earn excessive profits.
B. can charge any price they
want.
C. exploit the inelastic nature
of demand.
D.produce less
than the socially efficient amount.
49. The profit maximizing rule MR
= MC applies to
A.all firms.
B. monopolists only.
C. perfect competitors only.
D. all firm types except perfect
competitors.
50. Compared to a monopolist
charging a single price to everyone, perfect price discrimination makes
A. the monopolist better off and
all consumers worse off.
B. society worse off.
C. the monopolist worse off and
consumers better off.
D.the monopolist
and some consumers better off.
SHORT ANSWER QUESTIONS
1. The figure below depicts the
domestic market for sugar—a competitively-produced commodity—with and without
the provision of a subsidy for each unit sold. In the absence of the subsidy,
the domestic market price is determined on the global market.
a. Without the subsidy, what is
the amount of consumer and producer surplus?
b. With the subsidy, what is the
amount of consumer and producer surplus, and what is the cost to the government
of providing the subsidy?
c. What effect does the subsidy
have on total economic surplus?
2. The figure below depicts a
market before and after the introduction of a per unit (ad valorem) tax.
a. In the absence of a tax, what
is the amount of total economic surplus in this market?
b. If a $1 per unit (ad
valorem) tax is imposed on sellers, what will be the new equilibrium price
paid by consumers and the new after-tax price received by producers? How is the
burden of the tax shared?
c. How much revenue is collected
by this tax, and what is the deadweight loss in the market?
d. Suppose you learn that production
in this market generates an external cost of $1 per unit produced.
What is the deadweight loss from
the $1 tax in that case?
3. A village has five residents,
each of whom has accumulated savings of $50. Each villager can use the money to
buy a government bond that pays 10% interest per year or to buy a year-old
goat, send it onto the common to graz e, and sell it after one year. The price
of the goat that the villager will get at the end of the year depends on the
amount of weight it gains while grazing on the common, which in turn depends on
the number of goats sent onto the common, as shown in table below.
a. If the villagers each behave
on the basis of their own private incentives, how many goats will villagers send
onto the commons?
b. Suppose that instead of each
villager deciding what to do independently, a village elder decides the total number
of goats and bonds to invest in with the goal of maximizing total village
income. How many goats will the village elder choose to send onto the common?
.
4. The figure below represents
the demand and marginal revenue curves facing a single firm operating as a natural
monopoly along with the firm’s cost curves.
a. How much output will this
monopolist produce in order to maximize profits, what will be the market price,
and what will be the firm’s profits at that point?
b. What would be the monopolist’s
profits if it were instead required to produce at the socially optimal level?
c. What is the deadweight loss in
this market resulting from monopoly pricing?

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