ECO 365 Final Exam Latest Assignment
1. The DeBeers company is a
profit-maximizing monopolist that exercises monopoly power in the
distribution of diamonds. If the company earns positive economic
profits this year, the price of diamonds will:
·
Exceed
the marginal cost of diamonds but equal to the average total cost of diamonds.
·
Exceed
both the marginal cost and the average total cost of diamonds.
·
Be
equal to the marginal cost of diamonds.
·
Be
equal to the average total cost of diamonds.
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Final Exam
2. Using 100 workers and 10 machines, a firm can produce
10,000 units of output; using 250 workers and 25 machines, the firm produces
21,000 units of output. These facts are best explained by:
·
Diseconomies
of scale
·
Diminishing
marginal productivity
·
Economies
of scale
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3. Suppose that college tuition is higher this year than
last and that more students are enrolled in college this year than last
year. Based on this information, we can best
conclude that:
·
despite
the increase in price, quantity demanded rose due to some other factors
changing.
·
the
demand for a college education is positively sloped.
·
the
law of demand is invalid.
·
this
situation has nothing to do with the law of demand.
4. A monopoly firm is different from a perfectly
competitive firm in that:
·
A
monopolist’s demand curve is perfectly inelastic whereas a perfectly
competitive firm’s demand curve is perfectly elastic.
·
A
competitive firm has a u-shaped average cost curve whereas a monopolist does
not.
·
A
monopolist can influence market price whereas a perfectly competitive firm
cannot.
·
There
are many substitutes for a monopolist’s product whereas there are no
substitutes for a competitive firm’s product.
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5. The best example of positive externality
is:
·
Alcoholic
beverages
·
Pollution
·
Education
6. The theory that quantity supplied and price are
positively related, other things constant, is referred to as the law of:
·
supply
·
profit
maximization
·
demand
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7. A reduction in the supply of labor will cause wages
to:
·
Decrease
and employment to decrease.
·
Increase
and employment to increase.
·
Decrease
and employment to increase.
·
Increase
and employment to decrease.
8. Other things held constant in a competitive labor
market, if workers negotiate a contract in which the employer agrees to pay an
hourly of $17.85 while the market equilibrium hour rate is $16.50, the:
·
Quantity
of workers demanded will exceed the quantity of workers supplied.
·
Quantity
of workers supplied will exceed the quantity of workers demanded.
·
Supply
of labor will decrease until the equilibrium wage rate is $17.85.
·
Demand
for labor will increase until the equilibrium wage rate is $17.85.
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9. Alex
is playing his music at full volume in his dorm room. The other people living
on his floor found this to be a nuisance, but Alex doesn’t care. Alex’s music
playing is an example of:
·
Pareto
externality
·
Positive
externality
·
Negative
externality
·
Normative
externality
10. Oligopoly is probably the best market
for technological change because:
·
The
typical oligopoly has the funds to carry out research and development and
believe that its competitors are innovating, which motivates it to conduct
research and development.
·
The
typical oligopoly lacks the funds to carry out research and development and
therefore will use basic research from universities.
·
Research
and development occurs only if government subsidizes such activity, and
government tends to subsidize oligopolies.
·
The
typical oligopoly keeps price very close to average total cost because it fears
the entry of new rivals if its profits are excessively high.
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11. A perfectly competitive firm facing a price of $50
decides to produce 500 widgets. Its marginal cost of producing the last widget
is $50. If the firm’s goal is to maximize profit, it should:
·
Produce
more widgets
·
Produce
fewer widgets
·
Continue
producing 500 widgets
·
Shut
down
12. Graphically, a change in price
causes:
·
the
demand curve to shift.
·
both
supply and demand to shift.
·
a
movement along a given supply curve, not a shift.
·
the
supply curve to shift.
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13. In 1997, the federal government reinstated a 10 percent
excise tax on airline tickets. The industry tried to pass on the full 10 percent
ticket tax to consumers but was able to boost fares by only 4 percent. From
this you can conclude that the:
·
Supply
of airline tickets is perfectly inelastic.
·
Supply
elasticity of airline tickets is less than infinity.
·
Demand
elasticity for airline tickets is greater than zero in absolute value.
·
Demand
for airline tickets is perfectly inelastic.
14. In 2011, the
Department of Justice sued AT&T to block its
merger with the cell phone service provider T-Mobile. To defend itself against
the charge, AT&T argued that the:
·
Combined
company could raise prices, allowing it to survive in a rapidly changing
market.
·
Government
had no authority to block mergers in the telephone industry.
·
Government
had guaranteed it exclusive control of cell phone service.
·
Merger
would improve and expand cellular service to consumers.
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15. The law of diminishing marginal productivity
implies that the marginal product of a variable input:
·
Never
declines
·
Always
declines
·
Is
constant
·
Eventually
declines
16. Suppose OPEC announces it will increase production. Using
supply and demand analysis to predict the effect of increased production on equilibrium
price and quantity, the first step is to show the:
·
supply
curve shifting to the right.
·
demand
curve shifting to the left.
·
demand
curve shifting to the right.
·
supply
curve shifting to the left.
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17. Many call centers that provide telephone customer
services for U.S. companies have been established in India, but few or none
have been established in China. Why?
·
China
is at a more advanced stage of economic development than India.
·
China
lacks the political infrastructure to support call centers.
·
Indian
labor costs are equal to Chinese labor costs.
·
Chinese
labor lacks the specific language skills needed to make call centers profitable
in China.
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18. Suppose people freely choose to spend 40 percent of
their income on health care, but then the government decides to
tax 40 percent of that person’s income to provide the same level of coverage as
before. What can be said about deadweight loss in each case?
·
There
is no difference because the total spending remains the same and the health
care purchased remains the same.
·
Taxing
income results in less deadweight loss because government knows better what
health care coverage is good for society.
·
Taxing
income results in deadweight loss, and purchasing health care on one’s own
doesn’t result in deadweight loss.
·
There
is no difference between goods that are purchased in the market in either case.
19. At one time, sea lions were depleting the
stock of steelhead trout. One idea to scare sea lions away from the Washington
coast was to launch fake killer whales, which are predators
of sea lions. The cost of making the first whale is $16,000 ($5,000 for
materials and $11,000 for the mold). The mold can be reused to make additional
whales, and so additional whales cost $5,000 each. Based on these numbers, the
production of fake killer whales exhibits:
·
Diminishing
marginal product
·
Decreasing
returns to scale
·
Constant
returns to scale
·
Increasing
returns to scale
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20. There are many restaurants in the city of Raleigh,
each one offering food and services that differ from those of its
competitors. There is also free entry of
sellers into the market, and each seller serves a very small fraction of the
total number of meals served each day.
The restaurant industry in Raleigh is best characterized as:
·
Perfectly
competitive.
·
Monopolistically
competitive.
·
A
pure monopoly.
·
An
oligopoly.
21. Suppose foreign shrimp prices drop by 32 percent and
importers gain a 90 percent market share.
From this information, what would economists strongly suspect about this
industry?
·
Foreigners
have a comparative advantage in shrimping.
·
The
large sales of foreigners indicate they are better strategic business
bargainers than Americans are.
·
Americans
have a comparative advantage in shrimping.
·
Foreign
sellers probably are colluding on price to maximize profits.
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22. For a monopolist, the price of a product:
·
Is
less than the marginal revenue.
·
Exceeds
the marginal revenue.
·
Equals
the marginal cost.
·
Equals
the marginal revenue.
23. When Ross Perot ran for president as a third party
candidate in 1992, he argued that free trade with Mexico would result in
massive job losses in the United States because Mexican wages were so low.
Which of the following is the best explanation of why few economists agreed
with Perot?
·
Although
economics predicted that unemployment would rise, the increased profits of
corporations would raise stock prices enough to compensate for the lost jobs.
·
Economists
did not believe any jobs would be lost in the United States.
·
Although
economists believed that in some areas the United States would lose jobs, they
expected the United States would gain jobs in other areas.
·
Economics
believed that the U.S. unemployment would rise.
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24. Mr. Woodward’s cabinet shop is experiencing rapid
growth in sales. As sales have increased, Mr. Woodward has found it necessary
to hire more workers. However, he has observed that doubling the number of
workers has less than doubled his output. What is the likely explanation?
·
The
law of demand
·
The
law of diminishing marginal productivity
·
The
law of supply
·
The
law of diminishing marginal utility
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25. Price elasticity of demand is the:
·
Change
in the quantity of a good demanded divided by the change in the price of that
good.
·
Percentage
change in price of that good divided by the percentage change in the quantity
of that good demanded.
·
Percentage
change in quantity of a good demanded divided by the percentage change in the
price of that good.
·
Change
in the price of a good divided by the change in the quantity of that good
demanded.
26. Which of the following statements is true about a
downward-sloping demand curve that is a straight line?
·
The
slope remains the same, but elasticity falls as you move down the demand curve.
·
The
slope remains the same, but elasticity rises as you move down the demand curve.
·
The
slope and the elasticity fall as you move down the demand curve.
·
The
slope and elasticity are the same at all points.
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27. Strategic decision making is most important in:
·
Monopolistically
competitive markets.
·
Monopolistic
markets.
·
Oligopolistic
markets.
·
Competitive
markets.
28. Cartels are organizations that:
·
Encourage
price wars.
·
Keep
markets contestable.
·
Use
predatory pricing to monopolize industries.
·
Coordinate
the output and pricing decisions of a group of firms.
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29. Microeconomics and macroeconomics
are:
·
Interrelated
because what happens in the economy as a whole is based on individual
decisions.
·
Interrelated
because both are often taught by the same instructors.
·
Not
related because they are taught separately.
·
Virtually
identical, though one is much more difficult than the other.
30. Microeconomics is the study of:
·
a
firm's pricing policies
·
inflation
·
unemployment
·
business
cycles
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