The supply of loanable funds is perfectly elastic

CHAPTER 6

1. Refer to the diagram. The market was initially in equilibrium at a price of $284. The government imposed a $126 per unit tax, which is represented by a shift in supply from S1 to S2. How much of the $126 tax did buyers pay?

2. Refer to the exhibit. Demand for good Alpha is ----- and good Psi is an -----.

3. The elasticity of demand for good X is -1.7, the elasticity of demand for good Y is -0.25, and the elasticity of demand for good Z is -2.2; a per-unit tax levied on which good will maximize the taxes collected by the government?

A

Good X

B

Good Y

C

Good Z

4. In which of the following scenarios does the seller pay the full tax

A

perfectly elastic supply

B

perfectly elastic demand

C

perfectly inelastic demand

D

unit elastic supply

5. When the price of maple syrup increased from $1.99 to $2.39, the quantity demanded of honey increased from 20 units to 28 units. The cross-price elasticity is ----- and the two goods are -----.

A

-1.825, complements

B

1.825, substitutes

C

-3.177, substitutes

D

0.25, complements

E

none of the above

6. Consider the following: a good whose price increased from $4 to $5 per unit and the corresponding quantity supplied increased from 20 to 30 units, respectively. Calculate the supply elasticity.

7. Suppose demand is elastic, and the price falls. Total revenue

A

rises

B

falls

C

remains unchanged

8. Suppose the government eliminates import tariffs on sealing devices, and at the same time income decreases for buyers of this good, and this is considered a normal good, and supply shifts more than demand. As a result the equilibrium price ----- and the equilibrium quantity -----.

A

rises, rises

B

rises, falls

C

falls, rises

D

falls, falls

9. When the price of good A was $20 per unit, the quantity demanded of good B was 5 units. When the price of good A fell to $10 per unit, the quantity demanded of good B was only one unit. Calculate the cross-price elasticity of these substitute goods.

10. Suppose per-capita income increases from $25,000 in 2014 to $35,000 in 2015. Also suppose that the quantity demanded of a good in 2014 was 4,000 units, and in 2015 it was 5,000 units. This good is

A

an inferior good

B

a luxury

C

a necessity

D

a neutral good

11. Suppose you go to a shoe store with $80 in your pocket and plan to buy a box of shoes for $50, some socks for $10, and scarf for $20. Upon arriving at the store you discover that the price of shoes is $40, the price of socks is $15, and the price of a scarf is $20.

A

Consumer surplus is $20

B

Producer surplus is $1000

C

Consumer surplus is $5

D

Dead Weight Loss is $150

12. When the price of onions rose 7%, the quantity demanded of onions fell 2%, and the quantity demanded of scallions rose 20%.

A

Demand for onions is elastic, and scallions are elastic complements.

B

Demand for onions is inelastic, and scallions are inelastic complements.

C

Demand for onions is elastic, and scallions are inelastic substitutes.

D

Demand for onions is inelastic, and scallions are elastic substitutes.

13. When the price of roses fell 20%, the quantity demanded of tulips increased 10%, and the quantity demanded of roses increased 20%.

A

Roses are unit elastic and tulips are unit elastic substitutes.

B

Roses are inelastic and tulips are elastic complements.

C

Roses are unit elastic and tulips are inelastic complements.

D

Roses are perfectly elastic and tulips are perfectly inelastic complements.

14. Which of the following represents a substitute good that is cross-price inelastic?

A

-1.5

B

0.75

C

-2.2

D

2.2

CHAPTER 7

15. The total utility of consuming 3 units of good X is 7. The total utility of consuming 4 units of good X is 19. The marginal utility of consuming 4 units of good X is

A

1

B

26

C

12

D

19

16. The marginal utility of consuming good W is 24, and the price of good W is $2 per unit. The marginal utility of consuming good Q is 360, and the price of good Q is $40 per unit.

A

There is a shortage of good W

B

Utility is not being maximized - more W and/or less Q should be consumed.

C

Utility is not being maximized - more Q and/or less W should be consumed.

D

Utility is maximized.

17. First, watch EconGuru Sutton's video, then based on the following new information: suppose the price of muffins is $1, the price of soda is $3 (same as in the video), and the budget is $12; what is the quantity of muffins and soda that will maximize utility?

A

3 muffins, 3 sodas

B

4 muffins, 5 sodas

C

2 muffins, 1 soda

D

0 muffins, 4 sodas

18. Refer to the exhibit. What is the quantity of cotton and wool that will maximize total utility?

A

3 cotton, 11 wool

B

5 cotton, 15 wool

C

4 cotton, 13 wool

D

0 cotton, 14 wool

19. Suppose a consumer of oranges and tangerines is currently in equilibrium. If the price of tangerines falls, the consumer will attempt to restore equilibrium by:

A

buying more oranges

B

buying fewer tangerines

C

buying more tangerines

D

A and B

E

None of the above

20. What is the marginal utility of consuming the 2nd unit?

21. What is the total utility of consuming 6 units?

22. What is the total utility of consuming 6 units?

23. What is the marginal utility of consuming the 7th unit?

24. What is the marginal utility of consuming the 5th unit of good Y?

25. Suppose the interest rate is 10%; what is the present value of $7000 received 3 years from now?

26. Suppose the interest rate is 12% - consider an investment opportunity that returns $6,500 over four years as follows: the investment pays $500 after the first year; $1000 after the second year; $2000 after the third year; and $3,000 at the end of the fourth year. Should you invest $5,000 into this project?

A

NO: the present value of this investment is less than $5,000

B

MAYBE: the present value of this investment is equal to $5,000

C

YES: the present value of this investment is greater than $5,000

D

There is not enough information

27. Consider two loanable funds markets: A and B. Loanable funds in market A have a higher risk of default that market B. If the interest rate in market A is 4%, then the interest rate in market B is

A

lower

B

higher

C

the same

28. Yield to maturity is the term for how much interest is earned on a bond at the end of its term. For example, a one year discount bond with a face value of $1000 that is purchased for $800 has a yield to maturity of 0.25 or 25%. That is, it is the interest rate that equate the future value with the present value. What is the yield to maturity on a one year discount bond with a face value of $1000 that is priced at $944? Enter your answer in decimal form (eg., if you calculate 4.2% enter 0.042)

29. In its second year, Bayside Coffee Shop sold 12,200 cups of drip coffee for $4 each and 3,340 cups of espresso coffee for $6 each. Total fixed cost was $28,000. Total variable cost was $35,000. What was total revenue equal to?

30. In its second year, Bayside Coffee Shop sold 12,200 cups of drip coffee for $4 each and 3,340 cups of espresso coffee for $6 each. Total fixed cost was $28,000. Total variable cost was $35,000. What was total cost equal to?

31. In its second year, Bayside Coffee Shop sold 12,200 cups of drip coffee for $4 each and 3,340 cups of espresso coffee for $6 each. Total fixed cost was $28,000. Total variable cost was $35,000. What was the value of accounting profit?

32. In its second year, Bayside Coffee Shop sold 12,200 cups of drip coffee for $4 each and 3,340 cups of espresso coffee for $6 each. Total fixed cost was $28,000. Total variable cost was $35,000. Suppose the total implicit cost was $24,000; what was the economic profit?

33. Firms earning a zero economic profit necessarily lose a lot of money and are likely to file for bankruptcy.

A

True

B

False

CHAPTER 8

Use this worksheet as a reference for your answers to the corresponding homework questions

Cost of Labor: $6 / unit; Cost of Capital: $120 / unit

ANSWER 1 – 10 QUESTIONS THAT IS LABEL IN ON THE WORKSHEET.

PART B

34. Ferguson Enterprises can produce 500 units of copper roller bearings for $1175. What is the average total cost?

A

2.15

B

2.35

C

1.99

D

1.95

35. Ferguson Enterprises can produce 600 units of copper roller bearings for a total cost $1290; what is the average total cost?

36. When Ferguson Enterprises total cost is $1330, the average total cost is $1.90 - how many units are they producing?

37. Refer to questions #1, #2, and #3. Ferguson Enterprises is experiencing

A

economies of scale.

B

constant returns to scale.

C

diseconomies of scale

D

a labor shortage

38. When Jasper LLC produces 500 units, the total cost is $8750; what is the average total cost?

A

21.20

B

21.00

C

17.50

D

19.21

E

none of the above

39. Jasper LLC's total cost is $10500 and the average total cost is $17.50; how many units are they producing?

40. When Jasper LLC produces Q=700, ATC=17.50; what is TC?

41. Refer to questions #5, #6, and #7. Jasper LLC is experiencing

A

economies of scale.

B

constant returns to scale.

C

diseconomies of scale

D

a labor shortage

42. Refer to the exhibit. Production at Poloskiatics Amber Fiber, Inc. can be characterized as

A

economies of scale.

B

constant returns to scale.

C

diseconomies of scale

D

none of the above.

43. Consider the production of Twilight, Harry Potter, and Lord of the Rings. Compared to producing any one of these films, total cost of producing all three is ---- and average total cost is ---- because of ----- scale.

A

higher, higher, economies

B

higher, lower, diseconomies

C

lower, higher, economies

D

higher, lower, economies

E

lower, higher, diseconomies

F