microeconomics final exam study guide

Topics: factor markets, labor market inefficiencies, externalities, public and other goods, international trade, barriers to trade, poverty and income inequality

Suppose you open an artisanal studio specializing in the production of hand-woven carpets. You pay $5 in fixed costs for equipment and $9 per day to each of your artists (employees) who make the carpets. If the industry is perfectly competitive, and the current market price is $1, how many carpets should you produce, using the table below?

35

Suppose that a firm sells a good for a perfectly competitive price of $5. the equilibrium wage rate is $10. the first worker it hires produces five units. two workers produce a total of nine units. given this information, the firm will

hire both the first and second workers

A dairy farm produces cow's milk and sells it to a local store for $2.20 per gallon. Agricultural workers in the area are paid a fixed wage rate of $75 per day. Assume that the milk farm is profit maximizing. Referring to the table below, how many employees should the farm employ?

2

Refer to the table below of the output of a sandwich shop. If sandwiches are sold at $10 each, what is the value of the marginal product of the fourth worker?

$50

Which of the following would shift the labor supply curve to the right?

an increase in the labor force participation rate

which of the following is a factor of production at Rutgers?

the faculty

a decrease in the demand for autoworkers would NOT come about because of a(n)

increase in the market wage rate

Refer to the graph below of the value of the marginal product of labor for stonemasons. The equilibrium market wage for stonemasons is $100 a day, but a minimum wage of $130 a day for stonemasons is set by the government. As a result:

3 workers who would have been employed at the previous $100 market wage are now unemployed

an increase in wealth will cause the labor supply curve to

shift leftward if leisure is a normal good

The graph show a candy factory's production for one day. The firm pays each worker $110 a day and sells its toffee candy for $0.50 each. How many workers should the firm employ?

5

In the table, the total product of labor is shown for the hourly production of power tools. Assume that the market for power tools is perfectly competitive. If the price of a power tool is $2 and the market wage rate is $100 per hour, the profit-maximizing quantity of labor is _____ workers.

0

Suppose the Federal government decides to adopt a new visa policy for guest workers seeking to immigrate to the United States in order to find jobs. As a result, 30% fewer work visas are given out than had previously been granted. The change is expected to be permanent. The decrease in the number of visas leads to a ____ shift in of the ____ labor.

leftward; supply of

Suppose the birth rate has dropped significantly this year compared to previous years. Assuming nothing else has changed, what do you expect to happen in the labor market two decades from now?

the supply curve will shift to the left and the wage rate will increase

in general, because of the nature of opportunity costs, the price of an extra hour of leisure is

the hourly wage rate

Between which two points on the graph of labor supply does the income effect outweigh the substitution effect?

C and E

above-equilibrium wages paid by some employers as an incentive for better performance are called

efficiency wages

a security guard willing to work the midnight to 8 AM shift may make more than one who works 8AM to 4PM because of

compensating differentials

in which occupational categories workers least likely to be represented by a union negotiating salaries on their behalf?

leisure, hospitality, and trade

(NOT HEALTHCARE, GOVERNMENT, OR MANUFACTURING)

in which job category do women account for a majority of the labor force yet still earn less than men on average?

registered nurses

a new teacher often makes less than a teacher with 20 years of experience because of

differences in human capital

Since the ____ , ____ has grown faster than ____ , thus contradicting the simple model of wage determination.

1970s; productivity; real wages

which of the following is not one of the phenomena that may have contributed to the growing divide between real wages and productivity in the US in the past 40 years?

a greater awareness of and efforts to address discriminatory hiring and wage practices

The table shows the marginal social benefit and marginal social cost of preserving various amounts of land for state parks. Suppose that state parks yield benefits for the general public but that the marginal benefit that any one individual receives from state parks is close to zero. Without government intervention, the amount of land dedicated to state parks will be _____ acres.

0

firm A and firm B both produce a good whose manufacture causes pollution, but the firms differ in their marginal benefit from pollution. in this case, an emissions standard would

not be efficient since it does not take into account differences in marginal benefits from polluting

if a good whose production generates external costs were to be prices to take these costs into account, then compared to the free-market its price would likely ___ and its output would ___

rise; fall

Commercial and personal gardeners use millions of pounds of fertilizer each year. Unfortunately, many tend to overuse it, resulting in ground water pollution as the excess fertilizer is carried to streams and rivers as runoff. This creates a negative externality, as indicated in the graph, in which the social marginal cost includes both the private marginal cost and the external damage to society. Using the information in the graph, what is the value of the efficient per-unit tax necessary to achieve a socially optimal outcome?

$5

which is the best example of a good that generates a positive consumption externality?

vaccination

the harvesting of corn generates external costs in the form of methane gas emissions. without government regulation

the price of a bushel of corn will be less than the marginal social cost of the last bushel of corn sold

the government has adopted an emissions tax if it

charges automobile drivers $0.10 for each unit of automobile emissions

the optimal level of pollution is the quantity at which

the total benefit of pollution exceeds its total costs by the greatest possible amount

Refer to the table below showing individual benefits from street cleanings. Suppose that the marginal cost of each street cleaning is $9. How many street cleanings will there be?

4

An external cost is illustrated in the figure, with the two upward-sloping lines reflecting private and social marginal costs. When the government intervenes to correct for the external cost, output will _____ from _____ to _____.

fall; R; W

after many years, a small community builds a toll road, but discovers that it is not used very much. if it wishes for the road to be used at the socially optimal level, the community should

set the toll lower

Because of large up-front R&D (research and development) costs, pharmaceutical companies typically face high fixed costs when developing new drugs. The marginal cost of producing a drug after development is very low, often close to zero. When these companies set their price and output to maximize profit, patients pay a _____ price for a _____ quantity of the drug than is socially optimal.

higher; smaller

In the accompanying figure of online streaming movies, given a price of $4, area C is the:

deadweight loss

The figure reflects a software upgrade by Apple to its iCloud service. Apple incurred a fixed cost of $10 million in producing the upgrade; the marginal cost of allowing consumers to download the upgrade is zero. The economically efficient outcome would be for Apple to set a price of _____ and produce _____ upgrades.

$0; 250,000

public goods should be produced up to the point at which the marginal cost of production equals

the sum of the individual marginal benefits enjoyed by all consumers of that unit

according to the theory of comparative advantage, a country should

specialize and export goods with the lowest opportunity cost

China is relatively labor-abundant compared with European Union member nations. therefore, China has a comparative advantage in ___ compared with European member nations

goods that are labor-intensive in production

Refer to the graph below of the domestic market for recreational vehicles (RVs). Suppose the world price equals $50,000, and there is free trade. Calculate the loss of consumer surplus.

$41,250 million

Refer to the graph below of a country's domestic market for grapes. In autarky, the price of grapes is P_A. When the economy is opened to trade, the price falls to P_W, and producer surplus will _____ to area _____.

fall; Q

Refer to the graph below of a country's domestic market for headphones. Assume that S_d represents the domestic supply curve and that D_d represents the domestic demand curve. If the world price equals $100, and there is free trade, what is the gain in consumer surplus?

$2.25 million

According to the ______ theory, a country has a comparative advantage in a good whose production is intensive in the factors that are abundantly available in that country.

Heckscher-Ohlin

Suppose Mexico exports clothing to the United States, and the United States exports heavy equipment to Mexico. Proponents of the Heckscher–Ohlin model would explain this pattern of trade by noting that:

Mexico has a relatively large endowment of factors of production used in making clothing, while the United States has a relatively large endowment of factors of production used in making heavy equipment.

The United States can produce whiskey domestically, but it can also export whiskey if the world price is higher than the domestic price. If the United States exports whiskey, consumer surplus will _____, producer surplus will _____, and total surplus will ________.

decrease; increase; increase

an objective of the European Union is the promotion of “four freedoms” which include all except:

• movement of goods without tariffs

• ability of businesses to offer services in fellow EU countries without tariffs

• political unification

• free movement of people

political unification

Suppose the United States auctioned off all import quotas, the auctions were perfectly competitive, and the government received the revenues from the auction. In this case, the deadweight loss from a quota would be _____ the deadweight loss from an equivalent tariff.

equal to

the main difference between a tariff and an import quota is that

a tariff generates tax revenue, whereas an import quota generates rents to license holders

Refer to the graph below of the domestic market for a good. Assume that S and D are the domestic supply and demand curves and that the world price is P_W. Identify the area of deadweight loss when a tariff raises the domestic price from the world price to P_T.

D+F

Refer to the graph below of the domestic market for a good. Assume that S and D are the domestic supply and demand curves and that the world price is P_W. Identify the area representing government tax revenue when a tariff raises the domestic price from the world price to P_T.

E

in the importing country, the most likely effect of a tariff is to

raise the price and decrease the quantity demanded

according to the infant industry argument, import protection is needed because

it enables our protected industries to achieve technological efficiency and thus become competitive with mature foreign industries

Suppose the United States places a tariff on imported Brazilian ethanol. The impact of this tariff on the domestic ethanol market in the US is a _____ domestic price, _____ consumer surplus, and _____ producer surplus.

higher; less; more

if a nation’s Gini coefficient is falling over time, it means the country is experiencing

a decrease in income inequality

the Gini coefficient

varies between 0 and 1

the percentage of the population that falls below the poverty threshold is called the

poverty rate

among which of the following groups is the percentage living in poverty the highest?

children

Recalling what we learned about the cost of living in Middlesex County, New Jersey, suppose a family consists of a single adult with two children. Which of the various basic categories of costs is the most expensive for such a family?

child care

some of the major causes of poverty in the US are racial and gender discrimination, bad luck, a lack of proficiency in English, and

inadequate education and training

Suppose the Gini coefficient in Canada is 0.23 and the Gini coefficient in the United States is 0.39 . Which country's income distribution is more evenly distributed?

Canada