Ag Econ 1041
Fourth Exam, 130 points
December 13, 2010
Name __________KEY______________________
11 a.m. Section
True/False – one point each
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Anything worth doing is worth doing only until the net benefit one receives is no
greater than other choices.
A decrease in the cost of microprocessors and other computer parts will shift the
supply curve back and to the left for personal computers.
High transactions costs can reduce our consumption.
Economics is an approach or framework for decision making that incorporates
benefits and costs.
The profit and expectations of profit in an industry encourage additional firms to
enter the industry.
Because I have not seen Yellowstone National Park, I have no demand for it.
Saying a good has elastic demand is much like saying most people are conscious
of this good’s price and will alter purchases if price changes.
Non-equilibrium prices are common in a free market economy.
Monopolies are illegal in the United States.
Revenues will decrease for U.S. oil companies if the price of oil rises.
A socially optimum level of output guarantees the seller will make no economic
profits.
A deadweight loss is caused by having output deviate from the level where social
marginal costs equal social marginal benefits.
Non-price competition includes store lighting, location, parking lot size and
selection of goods.
We would expect a firm like Microsoft to continue making economic profit.
Resources and capital will be invested in industries where firms are making
economic profits.
Caterpillar, a heavy equipment producer, had its profit fall amid a downturn in
demand for heavy equipment, which suggests even oligopolists are not
guaranteed economic profits.
Competitive firms strive to become oligopolists which would prevent them
getting economic profits in the long run.
Economics is the study of how individuals use limited resources to produce, trade
and consume goods and services.
The demand curve is equivalent to the average revenue curve.
Profit equals average revenue minus marginal cost divided by the quantity sold.
The price of goods, such as charcoal grills and charcoal, tend to move in opposite
directions in the short run.
A surplus exists when Qd is greater than Qs at a specific price.
Elasticity is the relative responsiveness of quantity to a change in another
variable.
If two goods have a cross-price elasticity equal to 1, they are complements.
Profit = TR – TC.
1
Matching – one point each
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D
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Demand
Supply
Utility
Average variable cost
Externality
Decision rule
Oligopolist
Inelastic
Property rights
Consumer surplus
Marginal
Market structure
Opportunity cost
Economies of scale
Diminishing returns
Equilibrium
Monopoly
Deadweight loss
Own-price elasticity
Public good
Substitute
Profit maximization output
Profit
Competition
Incentive
MUa/Pa = MUb/Pb=…
Something that encourages certain behavior
Business environment
Necessary for efficient markets
AR > AC
Effect of a small change
Value or benefit
Loss of not being at societal optimum
Not very responsive
Single firm in a market
Marginal benefit
Holds prices down
One of a few competitors
Good not provided by a market
Responsiveness of quantity to price change
Variable cost per output
Net benefit to consumers
Marginal revenue = marginal cost
No tendency to change
Sellers lowest opportunity cost
Increasing marginal costs
Cost advantage of size
Next best alternative
Non-market impact
Potential replacement
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Short answers – five points each
51. Diagram the situation where external costs are internalized to the sellers. Give an
example of an external cost. Pollution, smoking, littering, etc
S1 = Msc
P
S
P1
P
D
0
Q1
Q
Q
2
52. How does a person decide to buy an ipad instead of a computer? Use a general formula.
MU iPad > MU computer
MC
MC
53. Name two ways to adjust the private market result so it is closer to the societal optimum.
a.) taxes, subsidies, regulations, marketable permits
b.) bans
54. What is a deadweight loss?
Loss of market value by not pricing at S = D
55. What distinguishes the competitive environment of the grain farmer from that of the local
convenience store?
Differentiated vs. homogeneous product
Price maker vs. price taker
Some price control vs. no price control
56. Draw the typical AVC, ATC, and MC curves and identify the total variable cost for a
specific quantity that you designate.
MC
$/q
ATC
AVC
VC
q
3
57. Thoroughly diagram the situation that exists when a government sets a price support above
equilibrium. What does this do to producer surplus? Increase
$/Q
S
Ps
Pf
P0
D
0
Qd
Q0
Q
58. Diagram the changing situation for parking on campus knowing there are more parking
spaces today than previously.
S
P
S1
P1
P0
D1
D
Q0
Q1
Q
4
Ten point questions
59. Diagram the short run situation for a firm in monopolistic competition that is making a
profit. What is likely to change to bring this firm into a long run equilibrium situation?
Firm entry and/or expansion
$/q
MC
ATC
P0
Profit
D
0
q0
q
MR
60. Diagram a typical situation for an unregulated monopoly. Show the total revenue, profit and
total cost of the firm. Rev = Profit + TC
P
MC
P
Profit
ATC
TC
D
Q
Q
MR
5
61. Diagram the situation for the computer market given that prices are falling.
a) What could cause the change in supply?
# sellers/size of sellers; price of related goods; price of inputs; expectations
b) What could cause the change in demand?
Substitutes/complements; utility; expectations; # buyers/size of buyers; income
P
S
S1
P0
P1
D
Q0
Q1
D1
Q
62. Present the complete trade model showing the U.S. selling a good to another country.
U.S.
S
ES
S
Other
P0
Pw
Pw
P0
D
ED
D
QD
QS
Qt
QS QD
6