FALL 2013 Final Exam

5/19/2018 FALL 2013 Final Exam

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Professor: M. Rush

ECO 2023

FALL 2013

FINAL EXAMThis test is governed by UFs academic honesty code. It is intended to have 34

multiple choice questions. Please check to be sure your copy has all 34. Chose the

best answer for each question.

The next is important: Unless you are specifically told otherwise, on this test do

notassume that demand or supply is either perfectly elastic or perfectly inelastic.

On the bubble sheet, please enter:

1. Your name and initials

2. Your UF ID number

3. Form code: A

4. Sign your name on the bubble sheet.

TURN OFF ALL CELL PHONES AND OTHER

COMMUNICATION DEVICES

Check that the form code and UF ID number you bubbled-in are correct now. Also check

to be sure your name is correctdo it now. I investigated the rumor that the ability to

correctly record these had been mastered by a few students at FSU. This rumor turned

out to be false. But, the rumor that an accounting major and a journalism major did

successfully record these on a test is true. These students have since been bronzed and

are on display outside their respective colleges to serve as an inspiration for all other

accounting and journalism students.CHECK YOUR TEST CODE AND UF ID NUMBER. IF YOU GET EITHER OF THESEWRONG, YOUR TEST MIGHT NOT BE GRADED AND IF IT IS GRADED, YOU WILL

LOSE 6 POINTS (which equals 2 questions)!

I have become increasingly concerned that some students are at a real disadvantage

because they are unwilling to ask questions during the exam while others ask a lot of

questions. Hence, to level the playing field, I have decided to eliminate allquestions

during the test. I dont like this policy, but it seems the fairest policy.

Do not ask questions of me or the TAs; in the interest of fairness I

have instructed them not to answer any questions during the exam.

You will have one hour (60 minutes) to complete the exam andbubble in all youranswers. When the TAs say that time is up, you musthand in your exam. We will not

give extra time to finish bubbling in the answers, so be sure you are done when the 60

minutes are up. Of course, you may hand in your test at any time before the 60 minutes

are up.

An answer key will be posted on the class web page later today at

about 2:00.


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E C O 2 0 2 3 F I N A L E X A M F A L L 2 0 1 3

The test scores AND GRADES will be on class web page probably by

Wednesday or Thursday.Once you see the answer key, you might have a question about why one answer

is right and another is wrong. For these questions, email me at

[email protected] Do NOT email the grader about these questions!After the scores are posted, if you think your posted score is incorrect, then email

the grader at [email protected] If you email me about your test

score, I will not forward the email nor respond to youyouMUSTemail the

grader. You have one week after the curved score is posted to request a grade

check. After a week, the score will not be changed. If the web reportswhat you

bubbled in for each question and you ask the grader to check an answer because

you believe you bubbled in something other than what is reported and the

reported answer on the web is correct, you will lose 1 additional question.

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1. As the wage rate rises, the income effect influences workers to work ____ hours, andthe substitution effect influences workers to worker ____ hours.

a. more; fewerb. more; morec. fewer; fewerd. fewer; more

2. Suppose the market for pork is perfectly competitive. If the demand for porkincreases so that the market price of pork rises, then an individual hog producer

_____ its equilibrium quantity of hogs and _____.

a. increases; suffers an economic lossb. increases; earns an economic profitc. does not change; suffers an economic lossd. decreases; earns an economic profite. decreases; suffers an economic loss

3. If macaroni and cheese is an inferior good, then a decrease in income will result in

a. an increase in the demand for macaroni and cheese.b. a decrease in the demand for macaroni and cheese.c. an increase in the supply of macaroni and cheese.d. a decrease in the supply of macaroni and cheese.

4. Suppose a product with an external cost is produced in a competitive market. If thegovernment takes no action, then the market will generally produce

a. more than the efficient quantity.b. less than the efficient quantity.c. the efficient quantity.d. the efficient quantity in the short run and more than the efficient quantity in the long run.e. more than the efficient quantity in the short run and the efficient quantity in the long run.

5. Suppose that the equilibrium wage in the low-skilled labor market is $8.00. Further,suppose the federal government raises the minimum wage to $7.75 an hour from itspresent level of $7.50. The governments action of increasing the minimum wagewill result in

a. a decrease in unemployment.b. an increase in unemployment.c. a shortage of low-skilled labor.d. neither a shortage nor a surplus of labor in the low-skilled labor market.

6. Neither the demand nor the supply of gasoline is perfectly elastic or inelastic. Whenthe government increases the federal tax on gasoline, the effect on buyers is that the

price of gasolinea. rises.b. falls.c. does not change.d. cannot be determined with the information given.

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7. If demand for the firms output increases so that the price of the good beingproduced increases, then

a. the firms demand for labor will decrease.b. the firms demand for labor will increase.c. the firms supply of labor will increase.d. the firms supply of labor will decrease.e. Both answers b and c are correct.

8. In an effort to protect endangered species from the effects of logging in Americasnational forests, the federal government passes a law prohibiting logging in most ofthe state of Washington. Which of the figures above best illustrates the effect of thislaw?

a. Figure Ab. Figure Bc. Figure Cd. Figure D

9. In the long-run, if firms in a perfectly competitive industry are making persistenteconomic losses

a. some firms will exit and the price will fall.b. some firms will exit and the price will rise.c. some firms will enter and the price may either rise or fall.d. some firms will exit and the price may either rise or fall.e. None of the above are correct.

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Sears

Lower prices Dont lower prices

Lower

prices

S: $15 million

W: $5 million

S: $11 million

W: $3 million

WalMart Dontlower

prices

S: $5 millionW: $7 million

S: $20 millionW: $20 million

10. Sears and Wal-Mart must decide whether to lower their prices, based on thepotential economic profits shown in the table above. (An S indicates Sears profitand a W indicates Wal-marts profit.) Who has a dominant strategy?

a. Walmart has a dominant strategy but Sears does not.b. Sears has a dominant strategy but Walmart does not.c. Both Walmart and Sears have dominant strategies.d. Neither Walmart nor Sears has a dominant strategye. More information is needed to determine if either Sears or Walmart has a dominant

strategy.

11. The figure above shows the U.S. demand and the U.S. supply of shirts. If the worldprice of shirts is $32 per shirt and the United States trades with the rest of the world,the U.S. consumer surplus equals ____.

a. $144 millionb. $256 millionc. $288 milliond. $576 million.e. None of the above.

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12. A perfectly competitive firm is producing at the point where its marginal costequals its marginal revenue. If the firm boosts its output, its total revenue will ____and its profit will ____.

a. rise; riseb. rise; fall

c. fall; rised. fall; fall

13. For a monopoly, the market demand curve is the firms

a. supply curve.b. marginal revenue curve.c. demand curve.d. profit function.

14. There are technological advances in the production of HD televisions. As a result,the equilibrium price of an HD television ____ and the equilibrium quantity ____.

a. rises; increases

b. rises; decreasesc. falls; increasesd. falls; decreases

15. Demand is price inelastic if ____ percentage change in the price leads to a ____percentage change in the quantity demanded.

a. a small; largeb. a large; smallc. any; larged. None of the above answers are correct.

16. Researchers have found a hybrid of corn that is cheaper to grow. This technological

breakthrough willa. increase the demand for corn.b. increase the supply of corn.c. decrease the supply of corn.d. Both answers a and c are correct.

17. Since about 1980, the income distribution in the United States has ____

a. become more equal.b. become less equal.c. not changed its degree of inequality.d. changed so that the distribution in 1980 is no longer comparable to that now.

18. In part, the Coase theorem is a proposition abouta. assigning property rights.b. measuring private costs.c. subsidizing external benefits.d. using vouchers.e. taxing external costs.

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19. The above figure shows a monopolistically competitive firm. To maximize its profit,

the firm will produce ____ and set a price of ____ per unit.a. 40 units; $3b. 60 units; $2c. 40 units; $1d. between 40 and 60 units; between $2 and $1e. 40 units; $2

20. The price of jet fuel rises. As a result the equilibrium price of airline travel ____ andthe equilibrium quantity ____.

a. rises, increasesb. rises, decreasesc. falls, increasesd. falls, decreases

21. Suppose a perfectly competitive market is in long-run equilibrium and then there isa permanent increase in the demand for that product. Ultimately, the new long-runequilibrium will have

a. fewer firms.b. more firms.c. the same number of firms.d. probably have a different number of firms, but it is not possible to determine if there will

be more or fewer firms.

22. Because of cost hikes, the price of tennis rackets rises. As a result, the equilibriumprice of a tennis ball____ and the equilibrium quantity ____.

a. rises; increasesb. rises; decreasesc. falls; increasesd. falls; decreases

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23. If a monopolistically competitive firm does not close, then the firm alwaysmaximizes its profit by producing the output at which marginal cost equals

a. average total cost.b. marginal revenue.c. price.d. zero.e. None of the above answers is correct because there is no rule that always maximizes the

firms profit.

24. If the price of a soda increases by 2 percent and as a result the quantity of sodasdemanded decreases by 5 percent, the price elasticity of demand equals

a. 0.40.b. 1.50.c. 2.50.d. 1.00.e. None of the above are correct.

25. Janes Garage Cleaning is a monopoly that currently cleans 40 garages a week.Janes marginal cost is $45, her price is $40, and her average total cost is $30. Jane____ and definitely is ____.

a. definitely is maximizing her profit; making an economic profitb. might be maximizing her profit; incurring an economic lossc. definitely is not maximizing her profit; making an economic profitd. might be maximizing her profit; incurring an economic losse. None of the above are correct.

26. A natural monopoly that is regulated to set its price equal to its marginal cost

a. incurs an economic loss.b. makes a normal profit.

c. makes an economic profit.d. maximizes producer surplus.

Production possibilities

Possibility

Pizza

(per hour)

Soda

(cases per hour)

A 0 100

B 1 95

C 2 80

D 3 60

E 4 35F 5 0

27. In the above table, the opportunity cost of the 2nd pizza is

a. 2 pizzas.b. 15 cases of soda.c. 95 cases of soda.d. 80 cases of soda.e. None of the above are correct.

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28. In the figure above, the richest 20 percent of households own ____ percent of all

wealth.a. 20b. 40c. 60d. It is impossible to tell the percentage owned by the richest 20 percent without more

information.e. It is possible to tell the percentage owned by the richest 20 percent but the answers are

incorrect.

29. A single-price monopolist produces a ____ quantity than a perfectly competitiveindustry with the same costs and charges a ____ price than the perfectly competitiveindustry.

a. greater; higherb. greater; lowerc. lesser; lowerd. lesser; higher

30. The Sherman Act

a. prohibits a firm with a large market share from lowering its price when its competitorslower their prices.

b. prohibits a firm with a large market share from raising its price when its competitors raisetheir prices.

c. has been interpreted by the Supreme Court to make price fixing among competitorsper

seillegal.d. prohibits all mergers between competing firms.

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31. Floods in Thailand have shut down many factories that make hard drives forcomputers. As a result, the equilibrium price of a computer hard drive ____ and theequilibrium quantity ____.

a. rises; increasesb. rises; decreases

c. falls; decreasesd. falls; increases

32. When the price of oranges changes from $200 to $160 per bushel, the quantity oforanges demanded changes from 1000 to 1400 bushels. What is the price elasticity ofdemand for oranges?

a. 1.5.b. 0.1.c. 10.0.d. 0.67.e. 0.75.

33. When duopoly games are repeated and a tit for tat strategy is used,a. the competitive outcome is more likely to be reached than when the game is played once.b. the monopoly outcome is more likely to be reached than when the game is played once.c. both firms begin to incur economic losses.d. one firm goes out of business.

34. After the scores are posted, if you have a question about your test score, email thegrader at [email protected] and the director is so stupid (HINT:Be SURE to answer this question because youll get credit for any answer.)

a. he tried to drown a fish.b. threw away all the doughnuts because they had holes in them it.c. he went to the dentist to get a blue tooth

d. he climbed over a barbed wire fence to see what was on the other side.

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FALL 2013 Final Exam