UC Irvine ECON 20A Winter 2014 Final Exam_VersionA

Econ 20A: Basic Economics I Name:Winter 2014: Jenkins March 19, 2014Final Exam: Version AInstructions: Choose the best answer for each question. Mark your answers on this exam and on yourscantron sheet. You may not use any outside materials: calculators, smartphones, scratch paper, etc. Thereare 65 questions.1. The US government should impose taris on imported goods in order to make the economy more fairfor domestic producers.” The preceding statement is an example of a(n):(a) Positive statement.(b) Normative statement.(c) Fact.(d) Testable hypothesis.2. Which of the following is not a property of a good model?(a) Usefulness for making predictions.(b) Generality.(c) Simplicity.(d) Complexity.3. Suppose that a country is producing at a point inside its production possibilities frontier. Which ofthe following is true?(a) The country is producing an ecient combination of goods.(b) The country is producing beyond its capacity, so its current production in infeasible.(c) The country is not using all available resources or is using inferior technology or both.(d) There will be a large opportunity cost if the country tries to increase its production of any good.1Use the following information to answer the next 4 questions. Consider two neighbors:Heteld and Ulrich. In one month, Heteld can produce either 100 pounds of apples or 25 gallons ofroot beer. In one month, Ulrich can produce either 60 pounds of apples or 20 gallons of root beer.Assume that each has a linear production possibilities frontier.4. What is the opportunity cost to Heteld of producing 1 pound of apples?(a) 3 gallons of root beer.(b) 1/4 gallons of root beer.(c) 4 gallons of root beer.(d) 1/3 gallons of root beer.5. Ulrich:(a) Has a comparative advantage in producing root beer and an absolute advantage in producingnothing.(b) Has a comparative advantage in producing apples and an absolute advantage in producing bothgoods.(c) Has a comparative advantage in producing apples and an absolute advantage only in producingapples.(d) Has a comparative advantage in producing root beer and an absolute advantage in producingboth goods.6. If Heteld and Ulrich voluntarily decide to specialize and trade, then which of the following is true?(a) Both could be better-o if Heteld specializes in producing apples and if Ulrich specializes inproducing root beer.(b) Both could be better-o if Heteld specializes in producing root beer and if Ulrich specializes inproducing apples.(c) Either Heteld or Urlich will become worse-o as a result of trading.(d) Both will be better-o if each spends half of their time producing apples and root beer.7. Which of the following combinations is on the ecient frontier for the combined PPF of Heteld andUlrich?(a) 60 pounds of apples and 25 gallons of root beer.(b) 45 pounds of apples and 160 gallons of root beer.(c) 100 pounds of apples and 20 gallons of root beer.(d) 160 pounds of apples and 45 gallons of root beer.28. According to the law of demand, if the price of a good rises,(a) The supply of the good will increase.(b) Producers will be more willing to sell that good.(c) Then consumers will be more willing to buy that good because it is more valuable.(d) Consumers will want to purchase less of the good.9. Suppose that two goods { Widgets and Gadgets { are substitutes. Other things equal, an increase inthe price of Widgets will have which of the following eects in the market for Gadgets?(a) The demand for Gadgets will increase.(b) The supply of Gadgets will increase.(c) The supply of Gadgets will decrease.(d) The demand for Gadgets will decrease.10. If an increase in consumer income causes a decrease in the demand for some good, then that good isconsidered a(n):(a) Normal good.(b) Worthless good.(c) Inferior good.(d) Substitute good.11. The market for Widgets is perfectly competitive. Suppose that the development of a new produc-tion technology has made workers more productive and has therefore decreased the cost of producingWidgets. What is the eect on the equilibrium price and quantity of Widgets?(a) The price and quantity will both fall.(b) The price and quantity will both rise.(c) The price will fall and the quantity will rise.(d) The price will rise and the quantity will fall.12. Notebook paper and pencils are complements. If the market for notebooks is perfectly competitive,what eect will a decrease in the price of pencils have on the equilibrium price and quantity of notebookpaper?(a) The price and quantity will both fall.(b) The price and quantity will both rise.(c) The price will fall and the quantity will rise.(d) The price will rise and the quantity will fall.313. Suppose you observe that the price of gasoline has risen and the quantity bought and sold has decreased.Assuming the market for gasoline is perfectly competitive, which of the following events could explainthis?(a) Political uprisings in oil-producing countries have disrupted oil companies’ ability to obtain crudeoil.(b) New oil reserves have been discovered.(c) Consumers have higher incomes and are driving their cars more.(d) Consumers have been purchasing cars that are more fuel-ecient.14. Suppose that the market for sandwiches is perfectly competitive. Bread is an input used to makesandwiches. And soup and sandwiches are complements. If the price of bread increases and the priceof soup decreases, what happens to the equilibrium price and quantity of sandwiches?(a) The price rises and the change in quantity is ambiguous.(b) The change in price is ambiguous and the quantity falls.(c) The price falls and the change in quantity is ambiguous.(d) The change in price is ambiguous and the quantity rises.15. Other things equal, the demand for goods with more close substitutes will tend to be:(a) More elastic.(b) Regular.(c) Upward-sloping.(d) Less elastic.Use the following information to answer the next 2 questions. A 4% increase in the price ofSprockets decreases the quantity of Widgets demanded by 2%.16. What is the cross-price elasticity of Widgets with respect to Sprockets?(a) -2(b) 0.5(c) 2(d) -0.517. Sprockets and Widgets are:(a) Normal goods.(b) Complements.(c) Inferior goods.(d) Substitutes.4Use the following information to answer the next 2 questions. Suppose that a decrease in thesupply of Widgets increases the price of Widgets by 10%. The total revenue earned by Widget sellersis unchanged.18. By what percentage does the quantity of widgets demanded change?(a) -10%(b) 10%(c) 0%(d) -20%19. What is the price-elasticity of demand for Widgets?(a) 1(b) .1(c) 0(d) 10Use the following information to answer the next 2 questions. The following table reects themarginal values that four people place on dierent quantities of bottle rockets.1 rocket 2 rockets 3 rockets 4 rocketsAnthony $10 $8 $6 $4Dignan $20 $15 $10 $5Bob $12 $11 $10 $9Applejack $5 $4 $3 $2For example, if Bob were to be given 3 rockets, then the entire gift would be worth $33 and the thirdrocket in particular would be worth $10 to him. Suppose that the price of a rocket is $7 per rocket:20. What is the total quantity of rockets demanded?(a) 9 rockets.(b) 8 rockets.(c) 10 rockets.(d) 7 rockets.21. What is the total consumer surplus received by the four consumers(a) $134(b) $42(c) $63(d) $105522. In a competitive market, consumer surplus is:(a) The market price minus the price that buyers would be willing to accept.(b) The price that buyers would be willing to pay minus the market price.(c) The price that sellers would be willing to accept minus the market price.(d) The market price minus the price that sellers would be willing to accept.23. A price ceiling is:(a) The minimum price at which sellers will be willing to sell a good or service.(b) The legal minimum price at which a good or service may be sold.(c) The legal maximum price at which a good or service may be sold.(d) The maximum price that consumers are willing to pay for a good or a service.24. A priceoor is binding:(a) Only when it is above the free market price.(b) If it is optional.(c) In every case because the government has the authority to enforce the law.(d) Only when it is below the free market price.6Use the following information to answer the next 3 questions. The diagram below representssupply and demand in the market for cups of frozen yogurt.20,000 40,000 80,0000$1$2$3DA SBCDEFGHIJKLMNOCups$=Cup25. If the government imposes a price ceiling of $1 on frozen yogurt, which of the following will be theconsumer surplus in the market for frozen yogurt?(a) A + B + C.(b) G + H.(c) A + B + C + G + H.(d) A + B + C + G + H + I + N.26. If the government imposes a price ceiling of $1 on frozen yogurt, which of the following would be thedeadweight loss generated by the policy?(a) L + M.(b) I + N.(c) G + H.(d) F + K.27. If the government imposes a price ceiling of $1 on frozen yogurt, which of the following represents thesurplus that would be transferred from producers to consumers as a result of the policy?(a) C.(b) B.(c) C + H.(d) B + G.728. Which of the following is true about binding priceoors?(a) A binding priceoor makes all consumers and producers better o.(b) A binding priceoor makes all producers worse o, makes some consumers worse o, and makessome consumers better o.(c) A binding priceoor makes all consumers worse o and all producers better o.(d) A binding priceoor makes all consumers worse o, makes some producers worse o, and makessome producers better o.29. Suppose that the U.S. government imposes the tax on coee sellers of $0.50 per cup of coee. If themarket price of coee rises by $0.30 per cup, we know that:(a) The demand for coee is unit elastic.(b) The supply of coee is more inelastic than the demand for coee.(c) The demand for coee is more inelastic than the supply of coee.(d) Coee companies are not treating consumers fairly.8Use the following information to answer the next 4 questions. The diagram below reectssupply and demand in the market for Kumquats.5 10 15 20 25 30 350$1$2$3$4$5$6$7DSKumquats$=Kumquat30. Absent any government intervention, what would be the equilibrium price and quantity of Kumquats?(a) The equilibrium price would be $4 per Kumquat and the equilibrium quantity would be 4Kumquats.(b) The equilibrium price would be $20 per Kumquat and the equilibrium quantity would be 4Kumquats.(c) The equilibrium price would be $20 per Kumquat and the equilibrium quantity would be 20Kumquats.(d) The equilibrium price would be $4 per Kumquat and the equilibrium quantity would be 20Kumquats.31. Suppose that the government imposes a tax on Kumquat buyers of $4 per Kumquat purchased. Whatis the new equilibrium quantity of Kumquats that will be bought and sold?(a) 5 Kumquats.(b) 20 Kumquats.(c) 15 Kumquats.(d) 10 Kumquats.32. If the government imposes a tax on buyers of $4 per Kumquat, then what will be the new market priceof Kumquats?(a) $6 per Kumquat.(b) $2 per Kumquat.(c) $3 per Kumquat.(d) $5 per Kumquat.9Use the following information to answer the next 3 questions. The diagram below reects theimposition of an import tari in the market for a cars.10 30 130 1500PWPW + tariDSABCDEFG HICars$=Car33. What area represents total surplus before the tari is imposed?(a) A + B + D + E + F + G + H.(b) A + B + C + D.(c) A + B + D + E + F + G.(d) A + B + C+ D + E + F + G + H.34. What area represents the deadweight loss created by the tari?(a) E + G + H.(b) E + F + G + H.(c) E + H.(d) E + F + H.35. What area represents the surplus that is transferred from consumers to producers as a result of thetari?(a) B.(b) G.(c) B + D + E.(d) B + D.1036. In general, import quotas:(a) Make domestic producers and consumers better o.(b) Make domestic producers worse o and domestic consumers better o.(c) Make domestic producers better o and domestic consumers worse o.(d) Make domestic producers and consumers worse o.37. A positive externality is present when(a) The consumers of a good or service do not bear the full social cost of production.(b) The consumers of a good or service do not receive the full social cost of consumption.(c) Goods and services are imported from abroad.(d) The consumers of a good or service do not receive the full social benet of consumption.38. When a negative externality is present, a tax that forces producers to bear the full cost of their actionsis called a(n)(a) Subsidy.(b) Inecient tax.(c) Tari.(d) Corrective tax.11Use the following information to answer the next 2 questions. The below diagram representsthe market for Widgets. The production of Widgets imposes a negative externality on society.200 300 4000$6$8$10PMB = SMBPMCSMCABCDFEGHIJKLMNXYZWidgets$=Widget39. What is the consumer surplus received by Widget consumers in the private market equilibrium?(a) A.(b) A + B + C + D.(c) A + B + C + F + K.(d) A + B.40. What is the deadweight loss associated with the private market equilibrium?(a) F + K.(b) X + Y.(c) K + L.(d) I + J.12Use the following information to answer the next 2 questions. Robert and Elizabeth areneighbors. Robert likes to ride his horse on the weekends. To save time, he always takes a short-cutacross Elizabeth’s property. Robert receives a benet of $10 each time he takes the short-cut. However,each time he rides across Elizabeth’s property, Robert causes $5 worth of damage to her grass.Assume that initially Robert feels that he has the right to ride his horse across Elizabeth’s propertyand that Elizabeth believes that Robert has no such right.41. Which of the following is true?(a) It is not socially optimal for Robert to take the short-cut.(b) It is socially optimal for Robert to take the short-cut.(c) It is only socially optimal for Robert to take the short-cut if he pays Elizabeth.(d) It is only socially optimal for Robert to take the short-cut if Elizabeth pays him.42. Suppose that Robert and Elizabeth go to court to settle their dispute. If the judge sides with Elizabethand gives her the right to expect that Robert will not ride across her property without her consent,then which of the following is true?(a) Robert and Elizabeth would each have been just as happy if the judge had sided with Robertinstead of Elizabeth.(b) The socially optimal outcome cannot be obtained because the judge sided with the wrong party.(c) Robert and Elizabeth would both be better-o if they could agree on an amount between $5 and$10 that Robert could pay Elizabeth so that he can continue taking the short-cut.(d) Robert and Elizabeth would both be better-o if they could agree on an amount between $5 and$10 that Elizabeth could pay Robert so that he will stop taking the short-cut.43. A good is excludable if:(a) People can be prevented from consuming the good.(b) One person’s use of the good diminishes another person’s ability to use the good.(c) One person’s use of the good does not diminish another person’s ability to use the good.(d) People cannot be prevented from consuming the good.44. National defense is typically considered a:(a) Public good because it is not rival in consumption and it is not excludable.(b) Public good because it is rival in consumption and it is not excludable.(c) Common resource because it is not rival in consumption and it is not excludable.(d) Common resource because it is rival in consumption and it is not excludable.1345. Which of the following statements about public goods is true?(a) A private market will produce the ecient quantity of a public good only if the market is perfectlycompetitive.(b) Public goods can be produced without cost.(c) The production of public goods is subject to the free-rider problem.(d) Public goods are associated with the tragedy of the commons.46. The tragedy of the commons arises because(a) The government bureaucracy leads to ineciency.(b) Free-riders cannot be forced to pay for the public good.(c) People have an incentive to over-consume common resources because they cannot prevent othersfrom consuming the good.(d) People have an incentive to over-consume public goods because they cannot prevent others fromconsuming the good.47. An implicit cost:(a) Does not represent an opportunity cost.(b) Requires an outlay of funds.(c) Does not require an outlay of funds.(d) Is not taken in to account when computing economic prot.48. Which of the following is an example of an implicit cost of attending college?(a) Books and fees.(b) Forgone earnings from working full-time.(c) Tuition.(d) Food and housing.49. Average total cost curves are typically:(a) Downward-sloping(b) Upward-sloping(c) U-shaped.(d) Perfectlyat.1450. The level of production that minimizes the average total cost of a rm is called the:(a) Prot-maximizing quantity.(b) Monopoly quantity.(c) Ecient scale.(d) Equilibrium quantity.Use the following information to answer the next 4 questions. Assume that that the market forcotton is perfectly competitive and that initially, the market is in a long-run equilibrium. Suppose that anincrease in the world demand for clothing has increased the demand for cotton.51. At the initial long-run equilibrium (before the increase in demand), we know that:(a) The price of cotton was equal to the average variable cost of producing cotton.(b) The typical cotton producer was earning zero prots.(c) The typical cotton producer was earning positive prots.(d) The typical cotton producer was producing with excess capacity.52. In the short-run, an increase in the demand for cotton will:(a) Have no eect on the prots of the typical rm because the market is competitive.(b) Decrease the prots of the typical rm.(c) Reduce the revenues of the typical rm.(d) Increase the prots of the typical rm.53. In the long-run, an increase in the demand for cotton will:(a) Have no eect on the market price and will increase the market quantity of cotton.(b) Have no eect on the market price or the market quantity of cotton.(c) Increase the market price and the market quantity of cotton.(d) Increase the market price and will have no eect on the market quantity of cotton.54. In the long-run, an increase in the demand for cotton will lead to:(a) No change in the number of rms.(b) A reduction in the number of rms.(c) An increase the number of rms.(d) An ambiguous change in the number of rms.1555. Which of the following is correct?(a) A monopoly’s ability to set the price of its product is constrained by consumer demand.(b) If a rm is earning positive prots then it must be a monopolist.(c) Consumers do not earn consumer surplus when a good is produced by a monopolist.(d) A monopolist can always increase its prots by raising the price of its product.56. A natural monopoly:(a) Should be broken up into smaller companies.(b) Arises when an industry is characterized by constantly falling average total cost.(c) Arises only in an unregulated marketplace.(d) Does not lead to a deadweight loss if left unregulated.57. The monopolist rm maximizes its prot by:(a) Setting the price of its product equal to marginal cost.(b) Choosing a production level so that marginal cost equals marginal revenue.(c) Choosing a production level so that marginal revenue equals zero.(d) Choosing a production level so that marginal cost equals average revenue.58. Typical public policies toward monopolies in the U.S. include each of the following except:(a) Public ownership of monopolies.(b) Regulation of natural monopolies.(c) Antitrust laws.(d) Imprisonment for executives of monopoly rms.16Use the following information to answer the next 3 questions. Assume that the market forburritos is monopolistically competitive and that Chipotle is a burrito producer. Initially the marketis in long-run equilibrium. Suppose that the demand for burritos increases.59. In the short-run, the increase in the demand for all burritos will:(a) Decrease the number of rms in the burritos market.(b) Cause Chipotle to produce more burritos at the original price.(c) Increase the prots earned by Chipotle.(d) Increase the number of rms in the burritos market.60. In the long-run, the number of rms in the burrito market will:(a) Increase and the demand for Chipotle burritos will increase.(b) Decrease and the demand for Chipotle burritos will increase.(c) Decrease and the demand for Chipotle burritos will decrease.(d) Increase and the demand for Chipotle burritos will decrease.61. In the long-run, the price of Chipotle burritos will:(a) Equal to marginal cost and production will be equal to the ecient scale.(b) Be greater than marginal cost and production will be less than the ecient scale.(c) Greater than marginal cost and production will be equal to the ecient scale.(d) Equal to marginal cost and production will be less than the ecient scale.62. Which of the following is not one of the benets of the division of labor cited by Adam Smith:(a) Application of machinery invented to facilitate the division of labor.(b) Improved dexterity.(c) Greater demand for goods.(d) Saving of time.63. According to Smith, the division of labor is limited by:(a) Laziness.(b) The extent of the market.(c) Competition.(d) Government interference.1764. According to Schmalensee and Stavins, how are SO2 allowances in the US allocated by the EPA?(a) Schmalensee and Stavins did not say.(b) The allowances are given away for free.(c) The allowances are auctioned to the highest bidders.(d) Firms apply for permits and only receive them if they demonstrate a compelling need.65. According to Schmalensee and Stavins, what was the right” reason for limiting SO2 emissions in theUS?(a) Protecting wetlands.(b) Improving the health of people in the US.(c) Reducing energy consumption.(d) Reducing acid rain.