Quiz 4 – Key
1. Benjamin operates a bookstore. His monthly revenue is $20,000, while his explicit, out-of-pocket costs to others (e.g., cashiers, custodians,
suppliers, etc.) total $15,000 per month. If Benjamin were to discontinue his operation of the bookstore, he would work as a librarian with a
monthly salary of $4,000. Which of the following statements is correct?
Benjamin's accounting profit from running the bookstore is $5,000, while his economic profit is $1,000
2. Suppose the oil companies plan a 10 percent increase in the price of gasoline. If the elasticity of demand for gasoline is 0.2, we would say that
consumers are:
elastic.
3. Titanic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. TSU is assuming that the
demand for education at TSU is
relatively inelastic.
4. Suppose the price of a liter of soda is $2. If Sara is willing to pay $3 for that liter of soda, her consumer surplus is:
$1.
5. In part, a solution to the principal-agent problem is to
devise compensation rules to induce agents to act in the best interest of principals.
6. Suppose economists estimate that a 10 percent increase in the price of frisbees would reduce the quantity demanded by 5 percent. This means
that the elasticity of demand for frisbees is:
-0.5
7. Which of the following statements is incorrect?
A firm's total accounting cost is at least as large as the firm's implicit cost.
8. A good will tend to be more elastic if:
it has close substitutes.
9. The demand for emergency medical care (within a range of prices the person can afford) is probably:
perfectly inelastic.
10. In the above figure, the price of the good is $20 and the shaded area represents:
consumer surplus.
11. If the demand for tennis shoes increases and a firm's supply curve is upward sloping, then:
producer surplus increases.
12. Consumers will only pay the full burden of an excise tax (a per unit tax) if
demand is perfectly inelastic.
13. Which of the following is true?
The price elasticity of demand for Ford Trucks is higher than the price elasticity of demand for autos in general.
14. Producer surplus is
the amount a seller is paid minus the cost of production.
15. A deadweight loss is a consequence of a tax on a good because the tax
induces buyers to consume less, and sellers to produce less.
16. Which of the following is an example of something that economists would consider a cost but accountants would not?
the salary that the firm actually pays to the firm's owner
17. The income elasticity of demand is likely to be lowest for which of the following goods?
milk
18. Suppose that ABC Beer Brewer faces a linear demand curve and that the current price for its beer is set at a point where the price elasticity is
1.6. If ABC Beer Brewer increases the product price,
the demand becomes more elastic and total revenue decreases.
19. Which of the following is not a benefit from the existence of firms
principle-agent relationships