Economics 302 Practice Final Exam Professor Bee-Yan Roberts Fall Only the multiple choice section of the final exam is represented here.

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1 Economics 302 Practice Final Exam Professor Bee-Yan Roberts Fall 1999 Only the multiple choice section of the final exam is represented here. 1. Which of the following is unlikely to occur as a result of a price support program? a. a reduction in consumer surplus b. a reduction in producer surplus c. an increase in quantity purchased d. an economic cost to government 2. Although rice is a staple of the Japanese diet, the Japanese government has long restricted the importation of rice into Japan. The result of this import quota is: a. to decrease the price of rice to the Japanese people. b. to decrease the consumer surplus of Japanese rice consumers. c. to decrease the producer surplus of Japanese rice producers. d. a welfare gain for the Japanese people. e. to increase the consumption of rice by the Japanese people. 3. When the government imposes a specific tax of $t per unit on a product, changes in consumer surplus are and changes in producer surplus are. a. negative; positive b. positive; positive c. negative; negative d. positive; negative 4. Consider the following statements when answering this question: I. When a competitive industry s supply curve is perfectly elastic, then the sole beneficiary of a reduction in input prices are consumers. II. Even in competitive markets firms have no incentives to control costs, as they can always pass on cost increases to consumers. a. I and II are true. b. I is true and II is false. c. I is false and II is true. d. I and II are false.

2 5. The consumer s gain from the imposition of a price ceiling is higher when: a. the own price elasticity of market demand is high and the price elasticity of market supply is high. b. the own price elasticity of market demand is high and the price elasticity of market supply is low. c. the own price elasticity of market demand is low and the price elasticity of market supply is high. d. the own price elasticity of market demand is low and the price elasticity of market supply is low. 6. Which of the following is NOT true for monopoly? a. The profit maximizing output is the one at which marginal revenue and marginal cost are equal. b. Average revenue equals price. c. The profit maximizing output is the one at which the difference between total revenue and total cost is largest. d. The monopolist s demand curve is the same as the market demand curve. e. At the profit maximizing output, price equals marginal cost. 7. Use the following two statements to answer this question: I. A firm can exert monopoly power if and only if it is the sole producer of a good. II. The degree of monopoly power a firm possesses can be measured using the Lerner Index: L=(P-AC)/AC. a. Both I and II are true. b. I is true and II is false. c. I is false and II is true. d. Both I and II are false. 8. Under which of the following scenarios is it most likely that monopoly power will be exhibited by firms? a. When there are few firms in the market and the demand curve faced by each firm is highly inelastic. b. When there are many firms in the market and the demand curve faced by each firm is highly inelastic. c. When there are few firms in the market and the demand curve faced by each firm is highly elastic. d. When there are many firms in the market and the demand curve faced by each firm is highly elastic.

3 Answer the next question using the graph below: 9. In moving from the competitive level of output and price to the monopoly level of output and price, the deadweight loss is the area: a. QmEHQc. b. GEH. c. GFH. d. FEH. e. none of the above.

4 10. The demand curve, marginal revenue, and short-run marginal cost curve for a product are given as follows: P = 360-4Q, MR = 360-8Q, SMC = 4Q What level of output maximizes the sum of consumer surplus and producer surplus? a. 0 b. 30 c. 45 d. 60 e. None of the above. 11. You are the producer of stereo components. There are two markets, foreign and domestic. The two groups of consumers cannot trade with one another. You will charge the higher price in the market with the: a. lower own price elasticity of demand (more inelastic demand). b. higher own price elasticity of demand (more elastic demand). c. larger elasticity of supply. d. greater consumer incomes. 12. Suppose that the marginal cost of an additional ton of steel produced by the Japanese is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater abroad than it is in Japan, which of the following will be correct? a. The Japanese will sell more steel abroad than they will sell in Japan. b. The Japanese will sell more steel in Japan than they will sell abroad. c. The Japanese will sell steel at a lower price abroad than they will charge domestic users. d. The Japanese will sell steel at a higher price abroad than they will charge domestic users. e. Insufficient information exists to determine whether the price or quantity will be higher or lower abroad. 13. A firm sells an identical product to two groups of consumers, A and B. The firm has decided that third-degree price discrimination is feasible and wishes to set prices that maximize profits. Which of the following best describes the price and output strategy that will maximize profits? a. P A = P B = MC. b. MR A = MR B. c. MR A = MR B = MC. d. (MR A - MR B ) = (1 - MC).

5 14. Regarding the government s current antitrust case against Microsoft, which of the following statements is not true? a. The government is charging Microsoft with violation of the Sherman Antitrust Act. b. The government alleges that Microsoft attempted to price discriminate by selling its web browser at different prices to different groups of consumers. c. The government alleges that Microsoft attempted to create barriers to the entry of new operating systems through the contracts it signed with computer manufacturers and internet service providers. d. Microsoft argues it is not technically possible to separate its web browser (Internet Explorer) and its operating system (Windows 98) so they must be sold as one product. 15. Which of the following is a positive externality connected to attending college? a. The fact that completion of a college degree acts as a signaling mechanism to employers. b. The fact that other costs, such as books and materials, are incurred in addition to tuition and fees. c. The fact that your college requires that all individuals living in student housing be vaccinated against all communicable diseases. d. The fact that you will learn about different cultures by interacting with students from different backgrounds. e. The fact that you will get benefits from college that you don t currently anticipate. 16. If all firms are required to buy emissions permits before discharging pollution then, in equilibrium, the price of a transferable emissions permit: a. is constrained to the amount the government first charged for it. b. equals the marginal cost of pollution abatement for all firms. c. equals the marginal cost of abatement for the firm with the highest cost, and exceeds the marginal cost of abatement of other firms. d. equals the marginal cost of abatement for the firm with the lowest cost, and is less than the marginal cost of abatement of other firms. e. equals the marginal social cost of emissions.

6 17. To enforce the optimum level of pollution abatement, a government could set an emissions fee or tax, which equals: a. the dollar value indicated by the intersection of the MSB and MSC of abatement curves, and would apply to every unit of pollution the firm emitted. b. the dollar value indicated by the intersection of the MSB and MSC curves, and would apply to every unit the firm emitted above the standard. c. the vertical intercept of the MSB curve. d. the vertical intercept of the MSC curve. e. the vertical distance between the intercepts of the MSB curve and the MSC curve. 18. When there are externalities, economic efficiency can be achieved without government intervention: a. at no time. b. when the externality affects many people and property rights are not well defined. c. when the externality affects many people and property rights are well defined. d. when the externality affects only a few parties and property rights are not well defined. e. when the externality affects only a few parties and property rights are well defined. 19. A factory has a choice to install a filter to remove water pollution. A nearby commercial fishing operation has a choice to install a water treatment plant. The Coase theorem specifies that: a. the result will be different if the fishermen are given the right to clean water than it will be if the factory is given the right to use the water as it sees fit, but the result will be inefficient in either case. b. the efficient result will occur whether the fishermen are given the right to clean water or the factory is given the right to use the water as it sees fit. c. economic efficiency requires that the fishermen be given the right to clean water. d. economic efficiency requires that the factory be given the right to use the water as it sees fit. e. economic efficiency requires that the fishermen be given the right to clean water and that the factory be given the right to use the water as it sees fit. 20. Access to the movie Casablanca, showing in a half-empty theater, is: a. a public good because individuals watch movies together. b. a rival good because individuals were willing and able to pay a positive amount to get in to the theater. c. a non-rival good because no other movie is available in that theater. d. not a public good because it is an exclusive good. e. not a public good because it is both a rival good and an exclusive good.

A. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost.

1. The supply of gasoline changes, causing the price of gasoline to change. The resulting movement from one point to another along the demand curve for gasoline is called A. a change in demand. B. a change