The following graph shows the demand curve for kumquats

1. The law of demand tells us that
a. the lower the price of a good, the lower will be the demand for that good.
b. the higher the price of a good, the lower will be the quantity demanded of that good.
c. the lower the price of a good, the higher will be the quantity demanded of that good.
d. both b. and c.
e. none of the above

2. If you are currently answering questions at a speed such that the marginal benefits of speed are equal to the marginal costs of speed, then
a. You should speed up, because otherwise you might run out of time
b. You should slow down because otherwise you might get tired before the end of the exam
c. No other speed will yield higher net benefits
d. You should go faster because you have nothing to lose by doing so
e. Both (b) and (d) are correct

3. Ceteris paribus, an decrease in the your income will cause
a. Demand for a normal good to fall
b. Demand for a normal good to rise
c. Demand for an inferior good to rise
d. The price of a good to rise
e. Both a. and c. are correct

4. The area under an individual consumer’s demand curve, from Q = 0 to Q = Q* = the last unit being consumed, measures
a. marginal cost of the last unit being consumed
b. marginal benefit of the last unit being consumed
c. total cost of consuming Q* units
d. total benefits of consuming Q* units
e. net benefits of consuming Q* units

Questions 5 – 8 are based on the following graph:

5. Assume this graph shows a market equilibrium that maximizes gains from trade. What is the price and quantity if this is true?
a. P3, Q1
b. P2, Q2
c. P1, Q3
d. P1, Q1
e. P3, Q3
6. Again, assume the graph shows a market in a gains from trade maximizing equilibrium. What area represents consumer surplus?
a. A + B + C + D + E + F
b. A + B + C + D + E
c. A + B + C
d. D + E + F
e. None of the above
7. Now, suppose the government imposes a price ceiling and this price ceiling changes price, quantity demanded, and quantity supplied. The price ceiling is shown on the graph (hint: based on the info given in the question, you must figure if the price ceiling is P1, P2, or P3). What is the consumer surplus when the price ceiling is instated (assume the price ceiling is strictly enforced)?
a. A + B + C + D + E + F
b. A + B + C + D + E
c. A + B + D
d. B + D + F
e. F
8. Using the graph above, what is the dead-weight-loss when the price ceiling from above is in effect?
a. A + B + C
b. D + E + F
c. C + E
d. N
e. A + B + D + F

Questions 9 - 12 are based on the following information. Every Thanksgiving, I drive halfway across the country to visit my family. When I do so, I must choose the average speed at which I drive; the table below shows the marginal benefits and marginal costs of driving at various speeds. All benefits and costs are measured in dollars, for convenience, but all of the relevant costs and benefits are taken into account. Also, for convenience in computing, assume average speeds come only in 10-mile-per-hour (mph) increments; thus, I can average 50 mph or 60 mph, but not 57 mph.
Average speed (mph) Marginal benefits Marginal costs
10 $1000 $ 50
20 950 150
30 900 250
40 850 350
50 800 450
60 750 550
70 700 650
80 650 750
90 600 850

9. Given the information in the table above, what are the total costs of my trip if I average 30 mph?
a. 250
b. 450
c. 650
d. 2400
e. None of the above

10. Given the information in the table above, at what average speed should I drive?
a. 40
b. 60
c. 70
d. 80
e. 90 or more, because benefits are still positive at 90

11. Given the information in the table above, what must be true about the net benefits of averaging 100 mph, compared to not taking the trip at all (i.e., averaging 0 mph)?
a. Greater than 0
b. Greater than $3150
c. Less than 0
d. Less than $3150
e. None of the above

12. Suppose that I must choose between an average speed of 50mph and an average speed of 90 mph, and these are the only two options. Which speed should I pick?
a. 50 mph
b. 90 mph
c. I would be exactly indifferent between these two options
d. Depending on my preferences, I might sensibly select either
e. None of the above

Questions 13 – 15 are based on the following information:
(i) Barley is an important input used in the production of beer.
(ii) The demand for beer is inelastic
(iii) The supply of beer is elastic
Beginning from an initial equilibrium, suddenly the price of barley rises.

13. The result of this increase in the price of barley will be:
a. a reduction in the supply of beer
b. an increase in the supply of beer
c. an increase in the demand for beer
d. a reduction in the demand for beer
e. both (a) and (d) are correct

14. Thus, as a result of the increase in the price of barley, we can expect that
a. total consumer spending on beer will rise
b. total consumer spending on beer will fall
c. total revenues of beer makers will rise
d. both (a) and (c) are correct
e. none of the above

15. Moreover, we can also expect that this rise in the price of barley will cause
a. consumer surplus (in the beer market) to rise
b. gains from trade (in the beer market) to rise
c. gains from trade (in the beer market) to fall
d. both (a) and (b) are correct
e. more drunks on Clemson’s campus after their economics finals are over

The following three questions are based on this information:

Consider the nations of England and Ireland. Each is capable of producing fish and chips. If Ireland spends all of its time on fish it can produce a maximum of 10 units a day, leaving it no time for chip production. Or, if it spends all of its time on chips, it can produce 5 of them in a day, leaving no time for fish production. Ireland is also capable of producing any linear combination of these.
England is capable of daily production of at most 20 fish (and no chips) if it specializes completely in fish, or a maximum of 20 chips (and no fish) if it produces only chips. As with Ireland, it is able to produce any linear combination of these extremes.
For simplicity, assume that Ireland and England can use their time only for producing these two goods.

16. Who is the low cost producer of chips?
a. Ireland, because it can produce the least of them
b. England, because it can produce the most of them
c. England, because it must sacrifice only one fish to make a chip.
d. Ireland, because it must sacrifice only 0.5 chips to make a fish.
e. Neither, because they both have the same cost of producing chips.

17. Who has a comparative advantage in producing fish?
a. Ireland, because it can produce the most of them
b. England, because it can produce the most of them
c. Ireland, because it must sacrifice only 0.5 chips to make a fish
d. England, because it is the low cost producer of fish.
e. none of the above

18. Suppose the world price of fish is $10 each and the world price of chips is $15 each. If each nation’s objective is to collect as much revenue as possible, how will they each organize production?
a. Ireland will specialize completely in chips and England will specialize completely in fish
b. Ireland will specialize completely in fish and England will specialize completely in chips
c. both will produce only chips
d. both will each make 5 fish and England will spend the rest of is time making chips
e. each nation will divide its time in the ratio 1.5 to 1 in favor of chips, because this is the ratio of the prices.

19. If the cross price elasticity of demand between widgets and kumquats is -2.0, one can conclude that
a. widgets and kumquats are substitutes and a rise in the price of one will cause an increase in the demand for the other
b. widgets and kumquats are complements and a rise in the price of one will cause an increase in the demand for the other
c. widgets and kumquats are substitutes and a rise in the price of one will cause a decrease in the demand for the other
d. widgets and kumquats are complements and a rise in the price of one will cause a decrease in the demand for the other
e. none of the above

20. When we say that Poland has a comparative advantage in producing sausages, we mean that Italy
a. can produce more sausages than beer, the only other commodity produced there
b. is the low cost producer of sausages
c. can produce more sausages than can any other country
d. can produce nothing but sausages
e. both (b) and (c) are correct

21. If the income elasticity of demand for kumquats is 0 (yes, “zero”), a rise in the incomes of kumquat consumers will lead to
a. a rise in the equilibrium price and quantity of kumquats
b. a fall in the equilibrium price and quantity of kumquats
c. a rise in the equilibrium price of kumquats, but a fall in the equilibrium quantity
d. a fall in the equilibrium price of kumquats, but a rise in the equilibrium quantity
e. no change in the equilibrium price or quantity of kumquats

22. If the demand for corn is elastic, a reduction in the supply of corn will cause
a. a reduction in expenditures on corn
b. a reduction in expenditures on corn only if the supply of corn is elastic
c. a change in expenditures on corn that may be positive or negative, depending on the elasticity of supply of corn
d. an increase in expenditures on corn only if the supply of corn is inelastic
e. an increase in expenditures on corn

Questions 23-25 are based on the following information:
All flimflams are made in either Japan or Korea. Americans are the sole purchasers of these flimflams, and
they do not care whether they buy flimflams made in Korea or those made in Japan. Assume an outbreak of
Japanese flu kills many of the highly skilled Japanese workers who produce flimflams. Korean workers are
unaffected, because no workers ever move or travel between Korea and Japan. (Hint: What effect will this flu have on wages, and thus production costs, in Japan?)

Let the price of flimflams be P and the total quantity of them be Q; let the amount produced in Korea be Qk
and the amount produced in Japan be Qj. Suppose you observe the following changes as a result of this episode:
%ΔQ = -40%
%ΔQk = +25%
%ΔQj = -50%
%ΔP = +20%

23. Given these observations, what is the elasticity of the demand for flimflams?
a. -1.5
b. -2
c. -1
d. -0.5
e. It cannot be determined, because the demand for flimflams shifts in this problem

24. Given these observations, what is the elasticity of the Japanese supply of flimflams?
a. -1
b. +1
c. +0.5
d. +2
e. It cannot be determined, because the Japanese supply curve shifts in this problem

25. Given these observations, what is the elasticity of the Korean supply of flimflams.
a. +1.25
b. +2.5
c. -2.0
d. +0.8
e. It cannot be determined, because the Korean supply curve shifts in this problem.

26. The figure above shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators. What is the firm's economic profit in the long run is 2) _______
a. $900.
b. $600.
c. zero.
d. $2,400.
e. $1,200

27. For a firm in perfect competition, the marginal cost curve intersects the average total cost curve
a. at no point.
b. at the minimum average total cost.
c. to the left of the minimum average total cost.
d. to the right of the minimum average total cost.
e. above the average total cost curve

28. In the above graph, the intersection of curve A and curve C is the
a. Shutdown point
b. Long-run equilibrium price and quantity
c. Point where the producer is indifferent between producing and shutting down
d. profit-maximizing price and quantity
e. Both (A) and (C) are correct

29. In the above graph, the average fixed cost curve is:
a. Labeled B
b. Labeled C
c. Not shown
d. Responsible for the distance between curves B and C getting smaller as quantity increases
e. Both C and D

30. An example of a negative consumption externality is:
a. Honey production and orange production
b. Flu vaccinations
c. Pollution
d. Loud parties
e. Beautiful architecture that was privately funded

31. In the figure above, if the market is unregulated, the price will be
a. $250 per unit.
b. $150 per unit.
c. $200 per unit.
d. $100 per unit.
e. Depends on if the producer is a price taker or a price searcher

32. Total cost is the sum of fixed costs and
a. implicit costs.
b. explicit costs.
c. accounting costs.
d. variable costs.
e. marginal costs

33. A period of time in which the quantity of at least one resource used by a firm is fixed is called
a. the market period.
b. the intermediate run.
c. the short run.
d. the long run.
e. the chicken run

34. Consider the perfectly competitive firm in the above figure. If price equals 10, what will the firm choose to do in the short run and why?
a. Shut down because the firm incurs an economic loss.
b. Stay in business because the firm is making an economic profit.
c. Stay in business because the firm’s economic loss is less than fixed costs.
d. Stay in business because it is earning a normal profit (that is, zero economic profit or loss).
e. Shut down because the price is below the firms shutdown point.

35. A firm in perfect competition maximizes its profit by producing the output at which its marginal cost equals its
a. marginal revenue.
b. average fixed cost.
c. average variable cost.
d. price.
e. Both a. and d. are correct.

36. In the above figure, the total fixed cost curve is curve
a. A.
b. B.
c. C.
d. D.
e. not shown.

37. In the above figure, curve D slopes downward because
a. there are diminishing returns to capital and labor.
b. average fixed cost decreases as output increases.
c. marginal cost decreases as output increases.
d. all costs decrease as output increases.
e. demand is downward sloping.

38. Suppose demand for a product produced in a perfectly competitive market permanently decreases. In the long run, the price
a. does not change because entry increases the supply of the product.
b. does not change because price cannot exceed average total cost in perfect competition.
c. does not change because exit decreases the supply of the product.
d. rises and each firm produces more output.
e. falls and each firm produces less output.

39. The above figure shows the demand and supply curves for housing in City A. As a result of a rent ceiling at $500, the deadweight loss is represented by the area
a. triangle gfe.
b. rectangle feag.
c. triangle acb.
d. triangle eca.
e. none of the above

40. The minimum wage is an example of a
a. price floor.
b. price ceiling.
c. quota.
d. tax.
e. subsidy.

41. The government imposes a sales tax on hot dogs. The tax would be paid entirely by hot dog sellers if the
a. demand is perfectly inelastic.
b. supply is perfectly elastic.
c. demand is perfectly elastic.
d. supply is perfectly inelastic.
e. both c. and d. are correct

42. It is easier for a monopolist to price discriminate between groups for a service than for a tangible product because
a. it is easier to calculate average willingness to pay for services.
b. it is easier for consumers to resell products than services.
c. it is easier to distinguish between groups of customers for services than customers for products.
d. people care less about services than products
e. customers for products usually do not differ with respect to their average willingness to pay.

43. Monopolies earn an economic profit in the long run because there are
a. free entry and exit.
b. barriers to entry.
c. inelastic consumers.
d. close substitutes for the product.
e. a large number of competing firms.

44. Which of the following is true regarding the long run for a firm in monopolistic competition?
a. ATC = MC = MR
b. P = MC = ATC
c. P = MC = MR
d. AVC = MC = MR
e. P = ATC

45. If two duopolists can collude successfully, then both will
a. price at marginal cost.
b. earn greater profits than if they did not collude.
c. price below average total cost.
d. set price equal to marginal revenue
e. lower their economic profits.

46. Which of the following statements is FALSE concerning monopolistic competition?
a. There are no barriers to entry.
b. Firms sell a differentiated product.
c. There are many firms.
d. Firms do not produce at the minimum of their average total cost.
e. Monopolistically competitive firms are price takers because of product differentiation.

Player A
Confess Don't confess

Player B Confess A: 3 years
B: 3 years A: 10 years
B: 1 year
Don't confess A: 1 year
B: 10 years A: 2 years
B: 2 years

47. The problem for the prisoners in the prisoners' dilemma game in the above table is that
a. neither prisoner has a workable strategy.
b. there is no equilibrium outcome.
c. neither player considers the actions of the other
d. the Nash equilibrium is not the best outcome.
e. all of the above

Quantity (millions of students per year) Marginal private benefit (thousands ofdollars per student per year) Marginal social benefit (thousands of dollars per student per year) Marginal private cost (thousands of dollars per student per year)
4 20 28 8
8 18 25 10
12 16 22 12
16 14 19 14
20 12 16 16
24 10 13 18

48. The table above shows marginal costs and benefits of college education. If the market for college education is perfectly competitive and efficiently regulated (so there is not deadweight loss in this industry), what is the price of college education?
a. $16,000 per year
b. $8,000 per year
c. $10,000 per year
d. $14,000 per year
e. $12,000 per year

49. The benefit from an additional unit of a good or service that people other than the consumer of that good or service receives is the
a. opportunity cost.
b. marginal social benefit.
c. marginal external benefit.
d. marginal private benefit.
e. gains from trade.

50. The above figure shows the marginal benefits and marginal costs of a college education. If society's external benefit from college graduates is $5,000 each, then the efficient number of students is
a. 5 million
b. 10 million.
c. 25 million.
d. 15 million.
e. 0.

51. A free rider is someone who
a. pays the dollar value that she places on a given level of provision of a public good.
b. pays for a good and then does not consume the good.
c. pays for a good and then consumes the good
d. pays less than the maximum amount that he or she is willing to pay for one more unit of the good.
e. consumes a good without paying for it.

52. Which of the following is the BEST example of a public good?
a. a can of Mountain Dew
b. an extra large pizza
c. national defense
d. cable television
e. fish in the ocean