Microeconomics Exam 2

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Refer to Figure 7-1. When the price is P₁, consumer surplus is

A+B+C

Refer to Figure 7-1. Suppose that the price falls from P₂ to P_1. Area C represents the

consumer surplus to new consumers who enter the market when the price falls.

Refer to Figure 7-1. When the price rises from P₁ to P₂, consumer surplus

decreases by an amount equal to B+C.

On a 100-acre farm, the farm is able to produce 3,000 bushels of wheat when it hires 2 workers. The farm is able to produce 5,000 bushels of wheat when it hires 3 workers. Which of the following case is consistent with diminishing marginal product? 

All of the above

The production of X has considerable external costs. Which of the following statements is true?

1. The socially optimal quantity must be greater than the free-market equilibrium quantity.

   2. A subsidy to the consumers of X will internalize the externality.

   3. A regulation that limits the production of X can solve this issue.

4. We should reallocate all recourses to produce as many Xs as possible.

only 3

Suppose people can read books in a public library for free. Books in a public library are most similar to a ______

 Refer to Table 15-6. In order to maximize profits, the firm will produce

5 units of output because marginal revenue equals marginal cost.

Refer to Table 15-6. The firm will produce a quantity greater than three because at 3 units of output, marginal cost

is less than marginal revenue.

What does the production function tell you about?

It tells the relation between the number of inputs and the quantity of output.

The "free-rider problem" refers to a situation where

public goods are underproduced due to free riders.

Typically, economists measure total consumer welfare in a market using

 consumer surplus.

Consider the following tax system. The marginal tax rate for income between $0 and $10,000 is 5%. The marginal tax rate for income between $10,000 and $30,000 is 10%. The marginal tax rate for income above $30,000 is 15%. If Summer earns $40,000 in income, how much will she owe in taxes?

$4,000

What is special about the intersection between MC curve and ATC curve?

It is at the minimum of the ATC curve and it indicates the efficient scale.

What is the shape of the average fixed cost curve?

always decreasing.

Table 14 shows the costs of a firm. According to Table 14, what are the fixed cost (FC) and the average total cost (ATC) when Q = 2?

FC is 80, ATC is 50.

According to Table 14, what is the total cost (TC) when Q = 1.

90

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

consumer does not purchase the good.

When positive externalities are present in a market

social benefits will be greater than private benefits.

Both public goods and common resources are

nonexcludable

While attending a concert, you paid $55 for a hoodie of your favorite artist. But you bought it 2 sizes too small. You decide to sell your hoodie to your cousin who lives in a different town. You’ll have to pay $15 for delivery by mail. What is the lowest price you should ask for the hoodie?

$15.

If your income is $40,000 and your income tax liability is $5,000, your marginal tax rate is

unknown. We do not have enough information to answer this question.

Trinity sells 300 candy bars at $0.50 each. Her total costs are $125. Her profits are

$25.00.

Refer to Figure 14-6. At levels of output less than F, the firm experiences

economies of scale.

Refer to Figure 14-6. At levels of output between F and G, the firm experiences

constant returns to scale

If a tax is levied on the sellers of shrimp, then

buyers and sellers will share the burden of the tax.

The tax rate on cigarette is around 30% in Michigan, and the demand of cigarettes is more inelastic than the supply. 

Buyers of cigarettes bear most of the burden of the tax.

A tax on luxury yachts 

decreases the revenue of yacht-making companies

What type of good is a paid Netflix movie, if you can share it with your roommates?

club

Refer to the figure below, what is the total surplus in equilibrium? 

3600

Consider the following tax system. The marginal tax rate for income between $0 and $20,000 is 10%. The marginal tax rate for income between $20,000 and $50,000 is 20%. The marginal tax rate for income above $50,000 is 30%. If Kim earns $80,000 in income, how much will she owe in taxes?

$17,000

Explain the definition of marginal product of labor in your own words.

The additional output produced by each additional labor.

On a 100-acre farm, the farm is able to produce 4,000 bushels of wheat when it hires 2 workers. The farm is able to produce 7,000 bushels of wheat when it hires 3 workers. When it hires 4 workers, the farm is able to produce _____________ bushels of wheat. 

Question: Write down a number to fill in the blank, so that the farm does NOT experience diminishing marginal product of labor. Only a number is needed to answer this question. 

Any number greater than 10,000

The government imposes a per-unit tax on sellers in a competitive market. Suppose demand is relatively inelastic and supply is relatively elastic. Who will bear most of the economic burden of the tax?

Buyers, because demand is relatively inelastic

If the market reaches the equilibrium

The price paid by the buyer equals the price collected by the sellers.

When sales tax is imposed in the market, the equilibrium is distorted and

The price paid by the buyer is greater than the price collected by the sellers

What is the measure of social economic welfare?

Total surplus

What is a measure of consumer happiness?

Consumer surplus

What is a measure of a producer’s economic well-being?

Producer surplus

A country has the following tax brackets:

1. 10% on income up to $10,000

2. 20% on income from $10,000-$40,000

3. 30% on income above $40,000

What is the total tax liability for someone earning $50,000?

$10,000

A country has the following tax brackets:

1. 10% on income up to $10,000

2. 20% on income from $10,000-$40,000

3. 30% on income above $40,000

What is the marginal tax rate for someone earning $50,000?

30%

A country has the following tax brackets:

1. 10% on income up to $10,000

2. 20% on income from $10,000-$40,000

3. 30% on income above $40,000

An individual earns $50,000 and pays $11,000 in taxes. What is their average tax rate?

22%

If your marginal tax rate is 30%, which of the following is correct?

Every extra dollar you earn is taxed at 30%

Which of the following is the best example of a negative externality?

A factory releasing pollution that harms nearby residents

When a negative externality exists in a market, the market equilibrium quantity is typically:

Higher than the socially optimal quantity

When a positive externality exists in a market, the market equilibrium quantity is typically:

Lower than the socially optimal quantity

When a positive externality exists in a market:

Social benefit is greater than private benefit

Which policy is commonly used by governments to reduce negative externalities?

Per-unit taxes on activity generating the externality

Which policy is commonly used by governments to incentivize positive externalities?

Subsidies to consumers

Refer to Figure 2 above. The world price is $2500, and a $300 tariff is imposed. What is consumer surplus after Tariff?

Area A+B

Refer to Figure 2 above. The world price is $2500, and a $300 tariff is imposed. What is producer surplus after Tariff.

Area C+G

Refer to Figure 2 above. The world price is $2500, and a $300 tariff is imposed. What is the deadweight loss after Tariff?

Area D+F

Which of the following is true when a country opens up to trade for oranges and finds that the world price is greater than the domestic price?

The country becomes an exporter of oranges.

If a country opens trade and becomes an importer of oranges, which group benefits the most directly from trade?

Domestic consumers

Which of the following consequences of trade is always true?

The country always gains from trade

Refer to Figure 1 above. What is the consumer surplus in equilibrium without trade?

Area A+B

Refer to Figure 1 above. What is the producer surplus in equilibrium without trade?

Area C

Refer to Figure 1 above. What is the consumer surplus after trade?

Area A

Refer to Figure 1 above. What is the producer surplus after trade?

Area B+C+D

Refer to Figure 1 above. What is the country’s gain from trade?

Area D