Name: ________________________ Class: ___________________ Date: __________

ID: A

Exam 2 Study Guide
Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. The presence of price controls in a market usually is an indication that a. an insufficient quantity of a good or service was being produced in that market to meet the public’s need. b. the usual forces of supply and demand were not able to establish an equilibrium price in that market. c. policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers. d. policymakers correctly believed that, in that market, price controls would generate no inequities of their own. 2. A binding price floor in a market is set a. above equilibrium price and causes a shortage. b. above equilibrium price and causes a surplus. c. below equilibrium price and causes a surplus. d. below equilibrium price and causes a shortage. 3. When a price ceiling is imposed in a market and the ceiling is binding, a. price no longer serves as a rationing device. b. the quantity supplied at the price ceiling exceeds the quantity that would have been supplied without the price ceiling. c. buyers and sellers both benefit in equal measure. d. buyers and sellers both are harmed in equal measure. 4. If a binding price ceiling were imposed in the computer market, a. the demand for computers would increase. b. the supply of computers would decrease. c. a shortage of computers would develop. d. All of the above are correct. 5. When policymakers set prices by legal decree, they a. are usually following the advice of mainstream economists. b. are usually improving the organization of economic activity. c. are obscuring the signals that normally guide the allocation of society’s resources. d. are demonstrating a willingness to sacrifice equity for the sake of a gain in efficiency.

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Name: ________________________

ID: A

Figure 6-4

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6. Refer to Figure 6-4. If the government imposes a price ceiling in this market at a price of $5.00, the result would be a a. shortage of 20 units. b. shortage of 10 units. c. surplus of 20 units. d. surplus of 10 units. 7. Refer to Figure 6-4. Which of the following price controls would cause a shortage of 10 units of the good? a. a price ceiling of $5.50 b. a price floor of $5.50 c. a price ceiling of $6.50 d. a price floor of $6.50

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Name: ________________________

ID: A

Figure 6-5

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8. Refer to Figure 6-5. The price of the good would continue to serve as the rationing mechanism if a. a price ceiling of $4.00 were imposed. b. a price ceiling of $5.00 were imposed. c. a price floor of $3.00 were imposed. d. All of the above are correct. Figure 6-6

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9. Refer to Figure 6-6. When the price ceiling applies in this market and the supply curve for gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought and sold is a. less than Q3. b. Q3 c. between Q1 and Q3. d. at least Q1.

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panel (a) b. Which panel best represents a binding rent control in the short run? a. if it is binding. teenage workers. c. Figure 6-7 ID: A ____ 11. is regarded by most economists as an inefficient way of helping the poor. c. female workers. b. no workers. higher rent and a surplus of rental housing. d. 4 . b. older workers. ____ 13. black workers. lower rent and higher quality housing. b. d. neither panel d. c. is the most efficient way to allocate scarce housing resources. d.Name: ________________________ ____ 10. The minimum wage. depending upon local housing conditions ____ 12. tenants can expect a. only those workers who cannot find jobs. either panel (a) or panel (b). Under rent control. lower rent and lower quality housing. b. serves as an example of how a social problem can be alleviated or even solved by government policies. c. higher rent and a shortage of rental housing. ____ 14. lowers the incomes of a. panel (b) c. The minimum wage has its greatest impact on the market for a. Rent control a. only those workers who have jobs. serves as an example of a price floor. Refer to Figure 6-7. all workers. d.

downward by less than the amount of the tax. free gasoline given to people as an incentive to a rent a car d. 2 percent to 6 percent. none of the above. b. Refer to Figure 6-8. the typical finding is that a 10 percent increase in the minimum wage has no measurable effect on teenage employment. the buyers b.50 per unit. $1. When a tax is imposed on the buyers of a good.Name: ________________________ ID: A ____ 15. c. b. ____ 16. upward by the amount of the tax. $1. c. 5 percent to 9 percent. an accumulation of dirt in the interior of rental cars b. downward by the amount of the tax. 5 . d. poor engine maintenance in rental cars c. d. 1 percent to 3 percent. The burden of the tax on buyers is a. who sends the tax payments to the government? a. Studies of the effects of the minimum wage typically find that a 10 percent increase in the minimum wage depresses teenage employment by about a. b. The question of who sends the tax payments cannot be determined from the figure. ____ 19. $2.00 per unit. c.00 per unit. As the figure is drawn.00 per unit. upward by more than the amount of the tax. d. slow replacement of old rental cars with new ones ____ 17. Refer to Figure 6-8. d. $3. the demand curve shifts a. Which of the following would be the least likely result of a price ceiling imposed in the market for rental cars? a. the sellers c. Figure 6-8 ____ 18. A portion of the tax payments is sent by the buyers and the remaining portion is sent by the sellers.

sellers are required to send nothing to the government and buyers are required to send two dollars to the government. b. One-fourth of the burden falls on buyers and three-fourths of the burden falls on sellers. Two-thirds of the burden falls on buyers and one-third of the burden falls on sellers. supply of the product decreases. c. the price paid by buyers rises from $5 to $7. d. a. c.Name: ________________________ ____ 20. All of the above are correct. ID: A Figure 6-11. sellers are required to send one dollar to the government and buyers are required to send two dollars to the government. the price received by sellers (after paying the tax) falls from $5 to $3. b. From the appearance of the graph. When a tax is placed on the sellers of a product. sellers are required to send three dollars to the government and buyers are required to send nothing to the government. c. All of the above are correct. b. the shift of the supply curve from S1 to S2 represents the imposition of a tax on a good. Consider Figure 6-11. for every unit of the good that is sold. As a result of the tax. sellers are required to send two dollars to the government and buyers are required to send one dollar to the government. effective price received by sellers decreases and the price paid by buyers increases. On the axes. size of the market is decreased. d. ____ 21. Which of the following statements correctly characterizes the burden of the tax? a. ____ 22. b. 6 . d. ____ 23. a. Consider Figure 6-11. d. c. On the graph below. Consider Figure 6-11. it is apparent that. One-third of the burden falls on buyers and two-thirds of the burden falls on sellers. the government collects $30 in tax revenue. Q represents the quantity of the good and P represents the price. One-half of the burden falls on buyers and one-half of the burden falls on sellers. the a.

$0. d. b.85. buyers will bear most of the burden of the tax. buys the dishwasher and on her purchase she experiences a consumer surplus of $150. the cost of a good to the buyer. d. c. ____ 26. Denise values a stainless steel dishwasher for her new house at $500. Buyers and sellers share the burden of the tax. A consumer's willingness to pay directly measures a. supply is more inelastic than demand. 7 . does not buy the dishwasher and on her purchase she experiences a consumer surplus of $150 on her non-purchase. b. b. If a tax is imposed on a market with elastic demand and inelastic supply. we know that the a. We have to know whether it is the buyers or the sellers that are required to pay the tax to the government in order to make this determination. it is impossible to determine how the burden of the tax will be shared. b.20. there is going to be downward pressure on the price of the good. he is willing to pay $0. c. He can buy as many cans of Dr. Pepper as he wishes at a price of $0.40 for the fourth can. b. b. c. The actual price of the dishwasher is $650.50. $0. $1. Assume Noah is rational in deciding how many cans to buy. c. b. the extent to which advertising and other external forces have influenced the consumer’s decisions regarding his or her purchases of goods and services. d. Which of the following statements is correct concerning the burden of a tax imposed on candles? a. ____ 25. $0. $0. Buyers bear the entire burden of the tax. consumer surplus. If a consumer places a value of $15 on a particular good and if the price of the good is $17. Pepper. ____ 30. $1. Denise a. sellers will bear most of the burden of the tax. ____ 28.05. d. c.50 per can. His consumer surplus is a. ____ 27. the consumer does not purchase the good. Suppose that a tax is placed on DVDs. the burden of the tax will be shared equally between buyers and sellers. Noah drinks Dr. then a. and $0.60 for the third can. buys the dishwasher and on her purchase she experiences a consumer surplus of $-150.Name: ________________________ ID: A ____ 24. d. c.80 for the second can. c. a. the market is not a competitive market. d. Sellers bear the entire burden of the tax. does not buy the dishwasher and on her purchase she experiences a consumer surplus of $0 on her non-purchase. demand is more inelastic than supply.95 for the first can. d. the consumer has consumer surplus of $2 if he or she buys the good. ____ 29. how much a buyer values a good. On a particular day. If the sellers end up bearing most of the tax burden. government has required that buyers remit the tax payments. government has required that sellers remit the tax payments.

Assume Alex. ____ 34. Refer to Table 7-3.Name: ________________________ ID: A ____ 31. d. d. decrease. b. for any price of an orange. $118. If the price of an orange is $0. b. Table 7-3 For each of three potential buyers of oranges.60. He receives consumer surplus of $13. Ray buys a new tractor for $118. Ray's willingness to pay is a.50 $0. value each buyer in the market places on the good. if the price of a good falls.50 $1.000.80 $0 Alex Barb Carlos ____ 33. decreases. is unchanged. c. ability of buyers to obtain the quantity they desire. Which of the following statements is correct? a. the consumer surplus a. and only three oranges can be supplied per day. b.90. c.00 $0. the market quantity of oranges demanded per day is a. Barb. highest price buyers are willing to pay for each quantity. total consumer surplus is $4.000. increases. First Orange $2.000. and Carlos are the only three buyers of oranges. All of the above are correct.75 $0. c.00 $1. d.25 Third Orange $0. or remain unchanged. ____ 32. $105. A demand curve reflects each of the following except the a. 8 . b. may increase. the table displays the willingness to pay for the first three oranges of the day. If the market price of an orange is $1. b. 1. All three individuals will buy at least one orange only if the price of an orange is less than $0.25.75 Second Orange $1. $131. c. Other things equal. d. willingness to pay of all buyers in the market.000 on his purchase. c. $13.20. 3.000. Refer to Table 7-3. 2. Neither Barb’s consumer surplus nor Carlos’s consumer surplus can exceed Alex’s consumer surplus. ____ 35.000. d. 4.

BCDE d. c. Dallas's consumer surplus would increase. d. Dallas's consumer surplus would be unaffected. ACF c. Dallas would be wise to buy fewer strawberries than before. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. and he would be willing to pay more than he now pays. If the market price is the same as before. 9 . Refer to Figure 7-2. DEF ____ 37. then a.Name: ________________________ ID: A Figure 7-2 ____ 36. Dallas buys strawberries. b. Dallas's consumer surplus would decrease. ABD b. Which area represents consumer surplus at a price of P2? a.

represented on a graph by the area below the demand curve and above the supply curve. d. When the price rises from P1 to P2. d. All of the above are correct. Refer to Figure 7-4. BCE b. which area represents the increase in producer surplus to existing producers? a. It remains unchanged. It may increase. What will happen to producer surplus in the market for nachos? a. ____ 40. c. It increases. c.Name: ________________________ ID: A Figure 7-4 ____ 38. also referred to as excess supply. decrease. b. or remain unchanged. DEF d. b. the amount a seller is paid minus the cost of production. Producer surplus is a. 10 . Suppose the demand for nachos increases. ABED ____ 39. ACF c. It decreases.

Consumer surplus c. producer surplus is maximized. Refer to Figure 7-7. c. ____ 43. d. up to the equilibrium quantity. We can say that the allocation of resources is efficient if a. below price and up to the point of equilibrium. sellers’ costs are minimized. 11 . Total surplus = Value to buyers . d. Producer surplus = Total surplus . C d. Total surplus = Amount received by sellers . Which of the following equations is valid? a.Name: ________________________ ID: A Figure 7-7 ____ 41. b. b. below the demand curve and above the horizontal axis. total surplus is maximized. below the demand curve and above the price.Amount paid by buyers d. B c. A b. Which area represents producer surplus when the price is P1? a. D ____ 42.Cost to sellers b. up to the equilibrium quantity. consumer surplus is maximized. below the demand curve and above the supply curve.Cost to sellers ____ 44. c. Total surplus in a market is the total area a. Consumer surplus = Total surplus .

Refer to Figure 7-9. If the price decreases from $22 to $16. producer surplus is greater than consumer surplus. then a. ____ 46. c. If 110 units of the good are being bought and sold. the value to buyers is greater than the cost to sellers. consumer surplus increases by a. the cost to sellers is equal to the value to buyers. $480. $120. b.Name: ________________________ ID: A Figure 7-9 ____ 45. d. the cost to sellers is greater than the value to buyers. 12 . b. $600. Refer to Figure 7-9. c. d. $360.

b. the overall well-being of society would remain unchanged. c. inconvenience the public. c. keep the cost of tickets to consumers low. 13 . a way of increasing the efficiency of ticket distribution. Economists tend to see ticket scalping as a. reduce the audience for cultural and sports events. c. the shortage of organs would be eliminated and there would be no surplus of organs. the shortage of organs would be eliminated. Refer to Figure 7-12. consumer surplus is maximized. ____ 50. At the quantity Q3. c. the sum of consumer surplus and producer surplus is maximized. government restrictions on ticket scalping do all of the following except a. but a surplus of organs would develop. b. d. a. If the government allowed a free market for transplant organs (such as kidneys) to exist. an inequitable interference in the orderly process of ticket distribution. Laissez-faire is a French expression which literally means a. an unproductive activity which should be made illegal everywhere. ____ 49. d. to make do. d. b. a. allow them to do. d. b. d. whatever works. the market is in equilibrium. ____ 48. a way for a few to profit without producing anything of value. waste the police's time. to get involved. the value to buyers is less than the cost to sellers. c.Name: ________________________ ID: A Figure 7-12 ____ 47. b. ____ 51. According to many economists. the shortage of organs would persist.

imperfectly competitive markets. the supply curve shifts upward by less than the amount of the tax. ____ 57. the demand curve shifts downward by the amount of the tax. When a tax is levied on a good. ____ 53. the supply curve shifts upward by the amount of the tax. large increases in payroll taxes. Suppose that the equilibrium price in the market for widgets is $5. 14 . both buyers and sellers are made worse off. When Ronald Reagan ran for the presidency in 1980. c. Orange juice and apple juice are substitutes.Name: ________________________ ID: A ____ 52. b. large increases in personal income taxes. d. b. b. decrease consumer surplus in the market for orange juice and decrease producer surplus in the market for apple juice. d. b. a. only buyers are made worse off. Inefficiency can be caused in a market by the presence of a. the resulting increase in producer surplus would be larger than any possible loss of consumer surplus. Bad weather that sharply reduces the orange harvest would a. c. large cuts in payroll taxes. ____ 54. a. increase consumer surplus in the market for orange juice and decrease producer surplus in the market for apple juice. externalities. ____ 56. c. d. large cuts in personal income taxes. d. c. d. market power. If a law reduced the maximum legal price for widgets to $4. he pledged to bring about a. d. decrease consumer surplus in the market for orange juice and increase producer surplus in the market for apple juice. c. the resulting increase in producer surplus would be smaller than any possible loss of consumer surplus. the demand curve shifts downward by less than the amount of the tax. any possible increase in consumer surplus would be larger than the loss of producer surplus. only sellers are made worse off. ____ 55. a. b. neither buyers nor sellers are made worse off. All of the above are correct. c. b. increase consumer surplus in the market for orange juice and increase producer surplus in the market for apple juice. any possible increase in consumer surplus would be smaller than the loss of producer surplus. When a tax is imposed on the sellers of a good.

800 per day. decreases total surplus from $3. c. b. total surplus is represented by area a. d. this means that the buyers of the good will send tax payments to the government.900 and it decreases producer surplus by $3.Name: ________________________ ID: A Figure 8-1 ____ 58. • generates tax revenue of $1. A + D. d. The supply curve and the demand curve are straight lines. it follows that the tax a. The tax generates tax revenue of $6.000 to 1. b. Refer to Figure 8-1.000 bags per day to 5. The tax decreases consumer surplus by $3. Suppose a tax is levied on the buyers of a good. Suppose a tax of $3 per unit is imposed on a good. c. then the supply curve shifts upward by the amount of the tax.000.000. A tax of $0. A + B. B + C. a. • decreases the equilibrium quantity of potato chips by 120 bags per day. decreases consumer surplus by $645 per day. from 2. b. d. ____ 61. produces a deadweight loss of $15 per day.400. this means that the buyers of the good will pay a higher effective price for the good.500. c. from 2. then the quantity supplied decreases for all conceivable prices of the good.880 bags per day.25 is imposed on each bag of potato chips that is sold. not that they will send tax payments to the government. When the market is in equilibrium. from 2.400 to 2.600 to 2.000.000 to 2.000. From this information. b. d. 15 . from 3. c. ____ 60. From this information it follows that the tax decreased the equilibrium quantity of the good a. ____ 59. C + D.220 per day. decreases the equilibrium quantity from 6.000 to $1. The tax • decreases producer surplus by $600 per day.

Q1. Refer to Figure 8-2.Name: ________________________ ID: A ____ 62. The supply curve and the demand curve for widgets are straight lines. Suppose the equilibrium quantity in the market for widgets is 200 per month when there is no tax. causes a disequilibrium in the market. P3 . ____ 63. The per-unit burden of the tax on sellers is a. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. A deadweight loss is a consequence of a tax on a good because the tax a. 16 .P2. induces the government to increase its expenditures. $50. P3 . c. imposes a loss on buyers that is greater than the loss to sellers. P2 . Then a tax of $5 per widget is imposed. induces buyers to consume less. $75. d. The government is able to raise $750 per month in revenue from the tax. d. Figure 8-2 ____ 64. d. b. Q2 . b. and sellers to produce less. $250. The deadweight loss from the tax is a.P1. $125. of the good. b.P1. c. c.

$16. Refer to Figure 8-3. $6.Name: ________________________ ID: A Figure 8-3 ____ 65. b. c. ____ 66. b. $480. $8. $16. $6. The amount of the tax on each unit of the good is a. $14. d. c. Refer to Figure 8-3. d. $8. The per-unit burden of the tax on sellers is a. c. $6. Refer to Figure 8-3. The tax results in a loss of consumer surplus that amounts to a. d. $14. $680. c. $16. ____ 68. ____ 67. $8. The per-unit burden of the tax on buyers is a. $360. $560. b. Refer to Figure 8-3. 17 . $14. b. d.

Refer to Figure 8-5.500. It increases by $3. $6. d. $12.3000.500. It increases by $1. The amount of the tax on each unit of the good is a. c. What happens to total surplus in this market when a tax is imposed? a. It decreases by $1. $10. 18 . $8. It decreases by $. d. ____ 70. Refer to Figure 8-5.000. c.Name: ________________________ ID: A Figure 8-5 ____ 69. b. b.

If Ryan pays Tammy $80 to clean his house. $40. the price elasticity of supply. $70. Refer to Scenario 8-1. ____ 73. the amount of the tax per unit. $60. The deadweight loss associated with this tax amounts to a. ____ 72. $20. $80. All of the above are correct. Refer to Figure 8-6. $40. b. $100. and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.Name: ________________________ ID: A Figure 8-6 ____ 71. c. b. d. 19 . and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. Tammy's opportunity cost of cleaning Ryan’s house is $70 per week. Ryan’s consumer surplus is a. and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. The amount of deadweight loss from a tax depends upon a. $60. c. c. d. d. Scenario 8-1 Ryan would be willing to pay as much as $100 per week to have his house cleaned. the price elasticity of demand. b. and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.

increase and the revenue generated from the tax to increase. but eventually it begins to rise. tax revenue continually rises and deadweight loss continually falls. For Henry George's land-tax argument to be valid. the size of labor taxes. b. d. As the size of the tax increases. taxes land and the improvements to land. As the size of the tax increases. clearly has merit for all countries that have income taxes. b. d. clearly has merit for the United States but not for most other countries. d. improved land. ____ 80. ____ 77. Economists disagree on whether labor taxes cause small or large deadweight losses. ____ 76. productive land. the land that is taxed must be a. deadweight loss falls initially. we would expect the deadweight loss from the Social Security tax to a. may not have merit for the United States but it has merit for most other countries. decrease and the revenue generated from the tax to decrease. The tax rate is very low and tax revenue is very low. c. b. b. ____ 79. As the size of the tax increases. d. This disagreement arises primarily because economists hold different views about a. The tax rate is moderate (between very high and very low) and tax revenue is relatively high. is most likely to have merit for a country that has very high marginal tax rates. is exactly the same as Henry George's single-tax proposal. tax revenue rises initially. c. d. tax revenue and deadweight loss rise initially. taxes only raw land. d. The argument that cutting income tax rates will increase tax revenues a. ____ 78. As more people become self-employed. c. d. c. As the size of the tax increases. the importance of labor taxes imposed by the federal government relative to the importance of labor taxes imposed by the various states. increase and the revenue generated from the tax to decrease. but it eventually begins to fall. Today's property tax a. the elasticity of labor supply. raw land. Which of the following scenarios is not consistent with the Laffer curve? a. c. but it eventually begins to fall. but both eventually begin to fall. c. deadweight loss continually rises. b. the elasticity of labor demand. The tax rate is very high and tax revenue is very high.Name: ________________________ ID: A ____ 74. Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward? a. 20 . The tax rate is very high and tax revenue is very low. ____ 75. decrease and the revenue generated from the tax to increase. tax revenue rises initially. b. c. b. which allows them to determine how many hours they work per week. has no deadweight loss since the amount of revenue going to the government equals the reduction in the landowners’ surplus. urban land.

Suppose the tax on gasoline is raised from $0. b. As a result. the supply curve for gasoline necessarily becomes steeper. minimize its explicit costs. d. Which of the following would be categorized as an implicit cost? (i) forgone investment opportunities (ii) wages of workers (iii) raw materials costs ID: A a. b. 176 units of output. Then the marginal product of the 16th worker is a. U-shaped. Refer to Scenario 13-4. b. Economists normally assume that the goal of a firm is to a. a. b. Average fixed cost will be a. b. d. marginal cost must be falling. c. c. Industrial organization is the study of how a. The firm is able to produce 176 units of output per day when 16 workers are hired (holding other inputs fixed). Scenario 13-4 Suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level. minimize its total cost. (ii) and (iii) d. labor unions organize workers in industries. industries organize for political advantage. ____ 86. c. d. c. tax revenue necessarily increases. c. ____ 87. b. average total cost is falling. All of the above are correct. 11 units of output. 10 units of output. falling at all points. d. ____ 83. maximize its total revenue. 16 units of output. the deadweight loss of the tax necessarily increases. average variable cost must be falling. (i) and (iii). Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. constant. ____ 82. firms' decisions regarding prices and quantities depend on the market conditions they face.50 per gallon. a. average total cost is rising. c. ____ 85. profitable firms are in organized industries. maximize its profit. When marginal cost is less than average total cost. rising at all points.Name: ________________________ ____ 81. ____ 84. (i) b. (ii) c. d. d.50 per gallon to $2. 21 .

Figure 2 c. B c. All of the above are correct. Which of the figures represents the marginal cost curve for a firm? a. Refer to Figure 13-7. c. When marginal cost is less than average total cost. Figure 4 ____ 90. Figure 3 d.Name: ________________________ ID: A Figure 13-6 The curves below reflect information about the cost structure of a firm. d. D Figure 13-7 ____ 89. Refer to Figure 13-6. average total cost is rising. ____ 88. b. A b. marginal cost eventually rises. As the quantity of output increases. Which of the following statements about costs is correct? a. The total cost curve is U-shaped. C d. Which of the curves is most likely to represent average variable cost? a. 22 . Figure 1 b.

Name: ________________________ ID: A Table 13-5 Measures of Cost for ABC Inc. ____ 92. he gets no harvest.00. the marginal cost of an extra worker is large. and the costs of seeds are his only costs. If he plants 2 bags of seeds. (i) and (iii) ____ 93. Thirsty Thelma owns and operates a small lemonade stand. the marginal product of an extra worker is small. c. a. If he plants 3 bags of seeds he gets 60 watermelons. he gets 30 watermelons. c. Which of the following statements is (are) true? (i) Farmer Jack experiences decreasing marginal product. a. (iii) Farmer Jack's total cost curve is linear. b. (i) and (ii) c. Refer to Table 13-5. Scenario 13-6 Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm.00. (i) only b.00. Because she can easily put her idle resources to use.00. If he plants 1 bag of seeds. When Thelma is producing a low quantity of lemonade she has few workers and her equipment is not being fully utilized. The average total cost of producing one widget is a. the marginal cost of one more glass of lemonade is smaller than if output were high. $1. $22. (ii) Farmer Jack's production function is nonlinear. d. A bag of seeds costs $100. $10. Widget Factory Quantity Variable Total Fixed of Widgets Costs Costs Costs 0 $10 1 $1 2 $3 $13 3 $6 $16 4 $10 5 $25 6 $21 $10 ____ 91. d. 23 . he gets 50 watermelons. (ii) only d. $11. Refer to Scenario 13-6. her lemonade stand is likely to be crowded with workers. b.

c. 24 . the average variable cost and average total cost curves intersect. d. d. diseconomies of scale. be horizontal. d. d. but increases after that. falling. declines as output increases from 0 to 33. b. the slope of total cost is the smallest. c. average fixed costs are falling. economies of scale. When marginal cost is greater than average cost. diminishing marginal product. average fixed costs are constant. average cost is a. but increases after that. then its long-run average total cost curve would a. c. d. b. is constant. ____ 99. but declines after that. If a firm experiences constant returns to scale at all output levels.Name: ________________________ ____ 94. ____ 97. rising average fixed cost. declines as output increases from 0 to 11. c. slope downward. From this information we can conclude that Beth's marginal cost a. constant. The fundamental reason that marginal cost eventually rises as output increases is because of a. long-run average total costs rise as output increases. Diseconomies of scale occur when a. rising. Beth pays all her workers the same wage and labor is her only variable cost. ____ 98. The minimum points of the average variable cost and average total cost curves occur where a. c. b. b. slope downward for low output levels and upward for high output levels. b. the marginal cost curve intersects those curves. b. ____ 96. long-run average total costs fall as output increases. c. increases as output increases from 0 to 11. Consider the following information about bread production at Beth's Bakery: Worker 1 2 3 4 5 6 7 Marginal Product 5 7 10 11 8 6 4 ID: A ____ 95. either rising or falling depending on the economies of scale. d. slope upward. the marginal cost curve lies below the average variable cost and average total cost curves.

gains from specialization of inputs ID: A 25 . fixed costs becoming spread out over more units of output d. diseconomies of scale b.Name: ________________________ ____ 100. Which of the following explains why long-run average cost at first decreases as output increases? a. less-efficient use of inputs c.

ANS: TOP: 3. ANS: TOP: C PTS: 1 Price ceilings | Price floors B PTS: 1 Price floors | Surpluses A PTS: 1 Price ceilings C PTS: 1 Price ceilings C PTS: 1 Price ceilings | Price floors A PTS: 1 Price ceilings | Shortages A PTS: 1 Price ceilings D PTS: 1 Price ceilings | Price floors A PTS: 1 Price ceilings C PTS: 1 Rent control MSC: Interpretive A PTS: 1 Rent control MSC: Interpretive B PTS: 1 Rent control MSC: Interpretive B PTS: 1 Minimum wage | Income D PTS: 1 Minimum wage | Labor force A PTS: 1 Minimum wage C PTS: 1 Price ceilings A PTS: 1 Tax | Demand curve A PTS: 1 Tax MSC: Applicative C PTS: 1 Tax burden MSC: Applicative D PTS: 1 Tax MSC: Applicative DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: DIF: DIF: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: DIF: DIF: 2 Interpretive 2 Interpretive 2 Interpretive 2 Interpretive 2 Interpretive 2 Applicative 2 Applicative 2 Applicative 2 Applicative 2 1 2 2 Interpretive 1 Interpretive 2 Interpretive 2 Applicative 2 Interpretive 2 2 2 REF: 6-0 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-1 REF: 6-2 REF: 6-2 REF: 6-2 REF: 6-2 1 . ANS: TOP: 20. ANS: TOP: 13. ANS: TOP: 11.ID: A Exam 2 Study Guide Answer Section MULTIPLE CHOICE 1. ANS: TOP: 2. ANS: TOP: 5. ANS: TOP: 18. ANS: TOP: 10. ANS: TOP: 4. ANS: TOP: 7. ANS: TOP: 12. ANS: TOP: 9. ANS: TOP: 6. ANS: TOP: 15. ANS: TOP: 19. ANS: TOP: 17. ANS: TOP: 14. ANS: TOP: 16. ANS: TOP: 8.

ANS: TOP: 24. ANS: TOP: 30. ANS: TOP: 29. ANS: TOP: 32. ANS: TOP: 42. ANS: TOP: 28. ANS: TOP: 38. ANS: TOP: 37. ANS: TOP: 35. ANS: TOP: 27. ANS: TOP: 22. ANS: TOP: C PTS: 1 DIF: 2 Tax MSC: Applicative A PTS: 1 DIF: 2 Tax MSC: Applicative D PTS: 1 DIF: 2 Tax burden MSC: Applicative C PTS: 1 DIF: 2 Tax incidence MSC: Applicative B PTS: 1 DIF: 3 Elastic demand | Inelastic supply | Tax incidence B PTS: 1 DIF: 2 Tax | Elasticity MSC: Applicative C PTS: 1 DIF: 2 Price | Value MSC: Interpretive B PTS: 1 DIF: 2 Price | Value MSC: Interpretive B PTS: 1 DIF: 2 Consumer surplus MSC: Applicative D PTS: 1 DIF: 2 Consumer surplus MSC: Applicative D PTS: 1 DIF: 1 Consumer surplus MSC: Interpretive D PTS: 1 DIF: 2 Demand curve MSC: Interpretive C PTS: 1 DIF: 2 Market demand MSC: Applicative A PTS: 1 DIF: 3 Consumer surplus MSC: Analytical C PTS: 1 DIF: 2 Consumer surplus MSC: Interpretive B PTS: 1 DIF: 2 Consumer surplus MSC: Interpretive B PTS: 1 DIF: 2 Consumer surplus MSC: Applicative D PTS: 1 DIF: 2 Producer surplus MSC: Applicative A PTS: 1 DIF: 2 Producer surplus MSC: Applicative B PTS: 1 DIF: 2 Producer surplus MSC: Interpretive C PTS: 1 DIF: 2 Producer surplus MSC: Interpretive C PTS: 1 DIF: 2 Total surplus | Efficiency MSC: Interpretive B PTS: 1 DIF: 2 Total surplus MSC: Definitional REF: 6-2 REF: 6-2 REF: 6-2 REF: 6-2 REF: 6-2 MSC: Applicative REF: 6-2 REF: 7-1 REF: 7-1 REF: 7-1 REF: 7-1 REF: 7-1 REF: 7-1 REF: 7-1 REF: 7-1 REF: 7-1 REF: 7-1 REF: 7-1 REF: 7-2 REF: 7-2 REF: 7-2 REF: 7-3 REF: 7-3 REF: 7-3 2 . ANS: TOP: 41. ANS: TOP: 33.ID: A 21. ANS: TOP: 43. ANS: TOP: 36. ANS: TOP: 26. ANS: TOP: 40. ANS: TOP: 23. ANS: TOP: 39. ANS: TOP: 34. ANS: TOP: 31. ANS: TOP: 25.

ANS: TOP: 52. ANS: TOP: 53. ANS: TOP: 48. ANS: TOP: 56. ANS: TOP: 66. ANS: TOP: 60. ANS: TOP: 49.ID: A 44. ANS: TOP: 64. ANS: TOP: 58. ANS: TOP: 59. ANS: TOP: 63. ANS: TOP: 46. ANS: TOP: 55. ANS: TOP: 50. ANS: TOP: C PTS: 1 DIF: 2 Total surplus MSC: Interpretive B PTS: 1 DIF: 3 Consumer surplus MSC: Applicative C PTS: 1 DIF: 2 Inefficiency MSC: Interpretive D PTS: 1 DIF: 2 Inefficiency MSC: Interpretive A PTS: 1 DIF: 2 Price ceilings | Inefficiency MSC: Interpretive C PTS: 1 DIF: 2 Market efficiency MSC: Interpretive D PTS: 1 DIF: 1 Laissez-faire policy MSC: Definitional D PTS: 1 DIF: 2 Market efficiency MSC: Interpretive B PTS: 1 DIF: 3 Price ceilings | Consumer surplus | Producer surplus C PTS: 1 DIF: 3 Consumer surplus | Producer surplus D PTS: 1 DIF: 2 Market failures MSC: Interpretive A PTS: 1 DIF: 1 Taxes MSC: Definitional D PTS: 1 DIF: 2 Tax | Supply curve MSC: Interpretive D PTS: 1 DIF: 2 Tax | Economic welfare MSC: Interpretive B PTS: 1 DIF: 1 Total surplus MSC: Interpretive C PTS: 1 DIF: 2 Tax | Buyers MSC: Definitional C PTS: 1 DIF: 3 Consumer surplus | Producer surplus | Deadweight losses D PTS: 1 DIF: 3 Consumer surplus | Producer surplus | Deadweight losses B PTS: 1 DIF: 2 Deadweight losses MSC: Interpretive B PTS: 1 DIF: 3 Deadweight losses MSC: Applicative C PTS: 1 DIF: 3 Tax burden MSC: Applicative C PTS: 1 DIF: 2 Tax burden MSC: Applicative D PTS: 1 DIF: 2 Tax burden MSC: Applicative REF: 7-3 REF: 7-3 REF: 7-3 REF: 7-3 REF: 7-3 REF: 7-3 REF: 7-3 REF: 7-3 REF: MSC: REF: MSC: REF: 7-3 Analytical 7-3 Applicative 7-4 REF: 8-0 REF: 8-1 REF: 8-1 REF: 8-1 REF: 8-1 REF: MSC: REF: MSC: REF: 8-1 Analytical 8-1 Analytical 8-1 REF: 8-1 REF: 8-1 REF: 8-1 REF: 8-1 3 . ANS: TOP: 65. ANS: TOP: 51. ANS: TOP: 47. ANS: TOP: 45. ANS: TOP: 54. ANS: TOP: 57. ANS: TOP: 61. ANS: TOP: 62.

ANS: TOP: 68. ANS: TOP: 70.ID: A 67. ANS: TOP: 74. ANS: TOP: 86. ANS: TOP: 82. ANS: TOP: 84. ANS: TOP: 83. ANS: TOP: 71. ANS: TOP: 89. ANS: TOP: 77. ANS: TOP: 72. ANS: TOP: 81. ANS: TOP: 87. ANS: TOP: B PTS: 1 DIF: 1 Tax MSC: Applicative D PTS: 1 DIF: 3 Consumer surplus MSC: Applicative C PTS: 1 DIF: 1 Tax MSC: Interpretive C PTS: 1 DIF: 3 Tax | Total surplus MSC: Applicative D PTS: 1 DIF: 3 Deadweight losses MSC: Analytical D PTS: 1 DIF: 1 Consumer surplus MSC: Interpretive D PTS: 1 DIF: 2 Deadweight losses MSC: Interpretive C PTS: 1 DIF: 2 Taxes | Labor | Elasticity | Deadweight losses B PTS: 1 DIF: 2 Tax | Social Security MSC: Applicative C PTS: 1 DIF: 2 Land tax MSC: Definitional C PTS: 1 DIF: 2 Land tax MSC: Interpretive C PTS: 1 DIF: 2 Laffer curve MSC: Interpretive D PTS: 1 DIF: 2 Tax rates MSC: Interpretive C PTS: 1 DIF: 2 Deadweight losses MSC: Applicative B PTS: 1 DIF: 2 Deadweight losses MSC: Applicative D PTS: 1 DIF: 1 Industrial organization MSC: Definitional A PTS: 1 DIF: 2 Implicit costs MSC: Interpretive B PTS: 1 DIF: 1 Profit maximization MSC: Definitional B PTS: 1 DIF: 1 Marginal product of labor MSC: Applicative B PTS: 1 DIF: 2 Average fixed cost MSC: Analytical C PTS: 1 DIF: 2 Average total cost MSC: Interpretive C PTS: 1 DIF: 2 Average variable cost MSC: Analytical A PTS: 1 DIF: 1 Marginal cost MSC: Analytical REF: 8-1 REF: 8-1 REF: 8-1 REF: 8-1 REF: 8-1 REF: 8-1 REF: 8-2 REF: 8-2 MSC: Interpretive REF: 8-2 REF: 8-2 REF: 8-2 REF: 8-3 REF: 8-3 REF: 8-3 REF: 8-3 REF: 13-1 REF: 13-1 REF: 13-1 REF: 13-2 REF: 13-3 REF: 13-3 REF: 13-3 REF: 13-3 4 . ANS: TOP: 88. ANS: TOP: 75. ANS: TOP: 78. ANS: TOP: 80. ANS: TOP: 79. ANS: TOP: 73. ANS: TOP: 76. ANS: TOP: 69. ANS: TOP: 85.

ANS: TOP: 96. ANS: TOP: 93. ANS: TOP: 94. ANS: TOP: 99. ANS: TOP: 98. ANS: TOP: 97. ANS: TOP: 95. ANS: TOP: C PTS: 1 Marginal cost C PTS: 1 Average total cost B PTS: 1 Production function B PTS: 1 Marginal cost A PTS: 1 Marginal cost A PTS: 1 Marginal cost | Average total cost B PTS: 1 Average total cost C PTS: 1 Diseconomies of scale C PTS: 1 Diminishing marginal product B PTS: 1 Constant returns to scale D PTS: 1 Average total cost DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: 2 Interpretive 2 Applicative 2 Interpretive 2 Interpretive 3 Applicative 1 Applicative 2 Interpretive 2 Definitional 2 Interpretive 2 Interpretive 2 Interpretive REF: 13-3 REF: 13-3 REF: 13-3 REF: 13-3 REF: 13-3 REF: 13-3 REF: 13-3 REF: 13-4 REF: 13-4 REF: 13-4 REF: 13-4 5 . ANS: TOP: 92. ANS: TOP: 91. ANS: TOP: 100.ID: A 90.

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