Chapter 5 1. If a pric pricee floor is is to to be be binding binding or ef f fecti e ctive, it mus must be set price. A. above the equilibrium price. low.. B. very low C. at th thee equi equilibrium librium price. price. D. at any di dise sequilibrium quilibrium price. price. E. at a leve evell such that ther e exists so som me excess demand demand.. 2.
Suppose the below depicts depicts the labour market for entry-l entry-level evel jobs jobs in Edmonton. If the minimum wage is set at $8, what is the leve evell of unemployment in millions millions of hours? What is the price is 20?
3. The figure to below to below shows the market for T-s T-shirt hirtss in a Hamilton neighbourhood. neighbourhood. The economic surplus generated by generated by consuming and producing the 40th T -s -shirt is is
4. The figure below shows the market for one-bedroom for one-bedroom apartments in Quebec City. The city government sets a rent ceiling at $570. In this situation situation,, if all apartments we wer r e sold sold on the black market,, then the rent for a one-bedroom apartment is market
5. If a specific market is quite large relative to the entire economy, A. general-equilibrium analysis will be necessary to understand this market. B. government intervention is necessary to link it to other markets. C. partial-equilibrium analysis is the only tool available to understand this market. D. general-equilibrium analysis will not be necessary to understand this market. E. changes in this market will not have considerable effects on other markets. 6. The figure below shows the market for product X. Suppose the government decides to impose a price flor at a price of $40. What will the quantity exchanged be?
7. A binding price floor leads to excess supply. Which of the following is a method by which government might deal with this excess supply? A. The government pays firms to not produce beyond the quantity demanded. B. The government buys the unsold output and stores it.
C. The government buys the unsold output and distributes it to low-income per sons. D. All of the above have been employed by governments from time to time. 8. A government might choose to implement a price floor to A. keep specific prices up. B. satisfy notions of equity. C. kowtow to powerful political groups. D. All of the above have ser ved as motivations. 9. The market for public is most likely linked to which of the following? A. Mass transit in Toronto. B. Fuel prices along the Trans-Canada Highway system. C. Population growth in Manitoba. D. The market for foreign cars. E. Parking costs in downtown Winnipeg.
10. What are the consequence of a binding minimum wage floor ? 11. If the price mechanism is allowed to work freely, excess supply is eliminated by A. price decreases. B. price controls. C. government purchases. D. price increases. E. black markets. 12. Consider the market for straw hats on a tropical island. The demand and supply schedules are given below.
a. What is the equilibrium price for straw hats. What is the equilibrium quantity demanded and quantity supplied of hats? b. Suppose the government believes that no islander should have to pay more than $4 for a hat. The government can achieve this by imposing a _________________ c. At the government-controlled price of $4 there will be a shortage of how many hats? d. Suppose now that the government believes the island's hat makers are not paid enough for
their hats and that islanders should pay no less than $6 for a hat. They can achieve this by imposing what price? e. At the new government-controlled price of $6 there will be a ____________ of ________________ hats 13. Consider the market for gyros in a hypothetical Canadian city, blessed with thousands of students and dozens of small gyro stands. The demand and supply schedules appear in the table below.
a. Draw the demand and supply lines in the graph at the right. Label the lines properly. b. What is the free-mark et equilibrium in this market? c. What is the total economic surplus in this market in the free-market-equilibrium? 14. When a black market emerges there is A. a deadweight loss. B. a deadweight gain for producers. C. a deadweight gain for consumers. D. an economic deficit. E. a maximized economic surplus. 15. Which one of the following is likely to be an outcome of a rent ceiling imposed above the market rental rate? A. Rental prices equal to the unregulated market price. B. A growing surplus of rental units. C. More families sharing living quarters. D. A reduction in the construction of new rental housing. E. Black mark et prices for rental units above the mark et equilibrium price.
16. The long-run supply cur ve for rental housing can be thought of as A. perfectly inelastic. B. per fectly elastic. C. horizontal. D. neither perf ectly elastic nor perfectly inelastic. E. having a zero slope.
Chapter 6 17. Jeff is willing to pay $8.90 for his fifth pizza slice (market price is $6.30) and the lowest price the store is willing to accept is $4.40. What is the economic surplus on the fifth pizza slice? 18. If mar ginal utility is negative, total utility is _____________________ 19. Consider the figure below. When the market price is $ 25 and 25 units are purchased, then what is the consumer surplus?
20. Rupert really loves pizza, but he eventually tir es of it. The table on the right shows the highest price that Rupert is willing to pay for each successive pizza per week.
a. Suppose Rupert were to eat one pizza per week. What is the total value Rupert would place on his one week ly pizza? b. If the market price is $13 per pizza, how many pizzas per week will Rupert eat? How much will the week ly consumer be? 21. Consider the market for sweater s in a Hamilton neighbourhood shown in the figure below. What is the consumer surplus generated by consuming the 29th sweater?
22. Consider Tom's total utility from drinking cups of coffee shown in the figure below. What is the marginal utility of the third cup?
23. Sally consumes only two goods, shoes and "everything else." For five different shopping trips (each with differ ent prices), the prices and Sally's marginal utilities are shown below.
a. Is Sally maximizing her total utility on each shopping trip? Explain why or why not. A. No, because the price is not equal to the marginal utility for each trip. B. No, because the marginal utility of shoes is sometimes greater than everything else. C. Yes, because the price exceeds the marginal utility for each trip. D. Yes, because utility obtained from the last dollar s pent on each product is equal. b. Explain how the number of shoes consumed is changing as their price changes. As the price of shoes decr eases the number of shoes Sally consumes can be expected to A. decrease since lower prices will justify buying more as the marginal utility rises. B. incr ease since lower prices will justify buying more as the mar ginal utility falls.
C. incr ease since lower prices will justify buying mor e as the mar ginal utility rises. D. decrease since lower prices will justify buying more as the marginal utility falls. c. R elying on the data shown in the ta ble above, Sally's demand curve for shoes can be ex pected to be negatively sloped because when the price falls, Sally will purchase more shoes as her marginal utility of A. shoes falls. B. shoes rises. C. everything else falls. D. shoes is constant. 24. The table below shows how Brett's utility increases as the number of avocados he consumes (per month) increases. Brett's utility is measured in utils, a name that economists invented to describe units of utility. What is Brett's marginal utility from consuming the seventh avocado?
25. The consumer surplus that Steve places on his consumption of hotdogs is measured by the area between the demand curve and the A. quantity axis. B. horizontal line at the market price. C. vertical line at the quantity demanded. D. supply curve. E. price axis.
26. Why news paper publishers are prepared to use vending machines that allow customer s to pay for one news paper and remove several, whereas candy and soft-drink producers use vending machines that allow customers to remove only the single pr oduct that is purchased? A. The marginal cost of producing an extra unit of news paper is very close to zero, so that publisher s don't take into account losses of several units of news paper. B. Unlik e candies and soft drink s, the marginal value of an extra unit of news paper is very close to zero, hence most people will take only one news paper. C. The government program against obesity forbids selling several units of candy or soft drink at a time. D. People who buy news paper s ar e considered to be more honest than people who like candies and soft drink s. 27. In what situation do the substitution effect and the income eff ect work to produce a downwar dsloping demand curve? A. a Giffen good. B. a marginal good. C. an inferior good with a large income effect. D. an inferior good with a small income effect. 28. At a used appliance store, Kathy purchases a used stove for $130 when she was willing to pay $160. If the stove costs $400 new, what is Kathy's consumer surplus? 29. If an individual is pr e pared to pay $3 for the fir st unit of a commodity, $2 for the second, $1 for the third, and the market price is $1, then A. the individual will purchase two units of the commodity. B. consumer surplus is $4. C. consumer surplus is $3. D. consumer surplus is $2. E. consumer surplus is $5. 30. Identify whether Claudia's expenditure on each product should rise or fall in order to maximize utility. Assume that Claudia's consumption choices are using up her entire budget.
31. Steve consumes oranges and peanut butter sandwiches and is currently maximizing his utility. The marginal utility of the last orange is 4 and the mar ginal utility of the last peanut butter sandwich is 12. If the price of an orange is $0.50, then what is the price of a peanut butter sandwich? 32. Refer to the figure below. What is the consumer surplus when this market is in equilibrium?
33. Suppose that a utility-maximizing consumer is usually purchasing two complements, ketchup (a normal good) and french fries. Suppose that the price of ketchup decreases and as a result the quantity purchased of french fries decreases, ceteris paribus . We can thus say that french fries are (Note that the money income of this consumer stays constant.) A. normal goods. B. inferior goods. C. necessities. D. luxuries.
Chapter 7 34. The average total cost curve and the average variable cost curve get A. farther and farther apart as output increases, because the average variable cost is rising. B. closer and closer as output increases, because the average fixed cost is declining. C. closer and closer as output increases, because the mar ginal cost is rising. D. closer and closer as output incr eases, because the average variable cost is rising. E. farther and farther a part as output increases, because the marginal cost is rising. 35. Economists assume that the goal of a firm is to A. sell as many units as possible. B. maximize profits. C. be the largest firm in its industry. D. max1m1ze gross revenues. 36. If the marginal product is at a maximum, the A. average varia ble cost is at a maximum. B. average fixed cost is at a maximum. C. total fixed cost is at a maximum. D. average total cost is at a minimum. E. marginal cost is at a minimum. 37. More productive resources will tend to flow toward the production of textbooks if A. economic profits for publisher s exceed zero. B. economic profits for publisher s are zer o. C. accounting profits for publishers exceed zero but economic profits are zero. D. accounting profits for publisher s are zero. E. economic profits for publisher s are less than zero. 38. Fixed factors are inputs A. that the firm cannot change during the short run. B. that cannot be trans ported from one place to another. C. that the firm can change during the short run. D. whose price remains constant. 39. Bob produces cakes. The quantity of cakes per month at which the variable cost per cake reaches its minimum is A. the same as the quantity of cakes at which the total cost per cake is at a minimum. B. more than the quantity of cakes at which the total cost per cake is at a minimum. C. the same as the quantity of cak es at which the average fixed cost per cake is at a maximum. D. the same as the quantity of cakes at which the average fixed cost per cake is at a minimum. E. less than the quantity of cakes at which the total cost per cake is at a minimum. 40. The output level at which diminishing marginal returns begins occurs where A. the total product is at a maximum. B. marginal product is at its maximum.
C. the average product begins to fall. D. the marginal product is larger than the average product curve for the first time. E. the marginal product is decreasing and equal to the average product curve. 41. The table below shows information on the short-run costs of production for Carl's firm.
we can conclude that the firm will minimize the average total cost of production when Q = __________ . (Round your response to the nearest whole number.) 42. If average variable cost is equal to marginal cost, A. average total cost is at a maximum. B. total fixed costs are at a maximum. C. average total cost is decreasing. D. marginal cost is at a maximum. E. total costs are at a maximum. 43. Mary is a general partner in a limited partner ship. She is A. res ponsible for none of the firm's debts if the firm has gone "public". B. r es ponsible for all of the firm's de bt. C. responsible for the firm's debt, but only up to four times the amount she invested in the firm. D. r es ponsible for the firm's de bt, but only up to the amount she invested in the firm. E. res ponsible for none of the firm's debt. 44. Which of the following is not an advantage of sole proprietor ships? A. Has one owner-manager and thus there is no issue of coordinating managerial effort. B. Easy to form. C. Unlimited liability. D. Easy to dissolve. 45. If the marginal product is equal to the average product, the A. marginal cost is decreasing. B. average variable cost is at a minimum. C. average total cost is decreasing. D. average fixed cost is at a minimum. E. average total cost is equal to the average fixed cost. 46. If average total cost is equal to marginal cost, A. average total cost is at a minimum.
B. total fixed costs are at a minimum. C. average variable cost is at a minimum. D. marginal cost is at a minimum. E. total costs are at a minimum.
47. In economics, the very long run for a firm is A. a period of time that starts on January 1 and ends on December 31 of possibly another year. B. the time frame in which the firm can change the amounts of all inputs of production, but not its technology. C. the time frame in which the firm can change the amounts of all inputs of production and its technology. D. usually three months, but it depends on the accounting laws of each country. E. the time frame in which the firm can change the amounts of some, but not all, inputs of production. 48. A carpenter quits his job at a furniture factory to open his own cabinet making business. In his first two year s of operation, his sales average $400,000 per year and his operating costs for wood, workshop and tool rental, utilities, and miscellaneous expenses average $305,000 per year. Now his old job at the furnitur e factory is again available. What is the lowest wage at which he should decide to return to his old job?
49. The variable cost per unit r eaches a minimum at the output quantity that is A. less than the output quantity where the total cost per unit is at a minimum. B. more than the output quantity where the total cost per unit is at a minimum. C. the same as the output quantity where the marginal cost per unit is at a minimum. D. the same as the output quantity where the total cost per unit is at a minimum. 50. A firm can obtain funds for investing by A. r etaining earnings. B. selling stock s. C. selling bonds. D. All of the above. E. None of the Above 51. Given the information about short-run costs in the table below.
What is the marginal cost when the production changes from 4 to 5 units? What is the average variable cost of producing 6 units? What is the average cost of producing 7 units? 52. If the average variable cost is increasing in the short run, then A. average total cost is decreasing. B. marginal cost is decreasing. C. total cost is decreasing. D. total cost is at a maximum. E. marginal cost is more than the average variable cost. 53. In the graph below, the average variable cost is curve ____________ . The average total cost is curve ______________ . The marginal cost is curve ____________________ .
54. The long run is defined as the time period over which A. all the firm's factors of production are identified.
B. all the firm's factors of production can be varied. C. some of the firm's factor s of production are imported. D. some of the firm's factors of production are fixed. 55. If the marginal product of a variable input is increasing, A. the marginal cost is incr easing. B. the average variable cost is increasing. C. the marginal cost is decr easing. D. the average total cost is incr easing. E. the average fixed cost is increasing. 56. If the average product is 5 and the mar ginal product is 9, the A. average product will fall. B. marginal product will rise. C. average product will rise. D. marginal product will fall. 57. The figur e below illustrates short-run cost curves for a firm. Based on this figure, which of the following is true?
A. A is the total variable cost, B is the marginal cost, and C is the total cost. B. A is the total fixed cost, B is the marginal cost, and C is the total cost. C. A is the average variable cost, B is the average total cost, and C is the marginal cost. D. A is the average variable cost, B is the total fixed cost, and C is the average total cost. E. A is the total cost, B is the total varia ble cost, and C is the total fixed cost.
58. Consider the revenues and costs in 2013 for Spruce Decor Inc., an Alberta-based furniture company owned by Mr. Harold Buford.
a. What would accountants determine Spruce Decor's profits to be in 2013? b. Suppose Mr. Buford has $425,000 of capital invested in Spruce Decor. Also suppose that equally risky enterprises earn earn a 17 -percent r ate of r eturn on capital. What is the opportunity cost for Mr. Buford's capital? c. What are the economic profits for Spruce Decor in 2013? d. If Spruce Decor's economic profits wer e typical of furniture mak er s in 2013, what would you expect to ha ppen in this industry? A. Exit would occur because economic profits are positive. B. Exit would occur because economic costs exceed accounting costs. C. Exit would occur because economic profit is less than accounting profit. D. Entry would occur because economic profits ar e positive.
Chapter 8 59. For the firm whose cost curves shown below, the minimum ef ficient scale is
A. about 100 units of production. B. the level of fixed cost corres ponding to SRATC2. C. about 20 units of production. D. about 60 units of production. E. between 60 and 140 units of production.
60. The short run average total cost curve will touch the long run average cost curve at a level of output A. at which the short run cost curve is downward-sloping and the quantity of the fixed factor is optimal. B. at which the quantity of the fixed factor being employed is at the optimal level for that level of output. C. such that the short run mar ginal cost equals the short run average variable cost. D. such that all the factors of production are at the optimal level. E. such that the short run cost curve is at a minimum. 61. In the figure to the right, decreasing long-run average total costs for the firm are confined to the output range A. wher e the LRAC curve is upsloping. B. below I 0 units of output. C. between 5 and 50 units of output. D. below 25 units of output. E. between 10 and 25 units of output.
62. !" In the diagram below, of the three output levels that are highlighted, which one illustrates economies of scale in the long run but diminishing marginal product for the variable factor in the short run is units. b. In the diagram to the right, of the three output levels that are highlighted, which one illustrates diseconomies of scale in the long run but falling average total costs in the short run is ______ units.
2. 63. A firm seeking to maximize profits must also minimize costs since A. firms that maximize profits have the power to hold costs to a minimum. B. profits and costs are related in r eciprocal fashion. C. the failure to do so obviously negates the possibility of maximum profit. D. cost minimization guarantees maximum profit. E. None of the above 64. For the firm whose cost curves are shown below, the minimum efficient scale is
A. about 2 units of production. B. about 10 units of production. C. the level of fixed cost corresponding to SRATC1. D. between 2 and 10 units of production. E. about l 6 units of production. 65. If the short-run average total cost curve touches the long-run average cost curve at the minimum point of the SRA TC curve, the A. long-run average cost curve is at a minimum. B. firm is not minimizing costs. C. short-run average cost curve is constant. D. short-run average cost curve is increasing. E. short-run average cost curve is dr awn incorrectly.
