The Flying Elvis Copter Rides

PRACTICE II

Table 7-3

The only four consumers in a market have the following willingness to pay for a good:

Buyer	Willingness to Pay
Carlos	$15
Quilana	$25
Wilbur	$35
Ming-la	$45

1. Refer to Table 7-3. Who experiences the largest loss of consumer surplus when the price of the good increases from $20 to $22?

a.	Quilana
b.	Wilbur
c.	Ming-la
d.	All three buyers experience the same loss of consumer surplus.

Table 7-5

For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

	First Orange	Second Orange	Third Orange
Alex	$2.00	$1.50	$0.75
Barb	$1.50	$1.00	$0.80
Carlos	$0.75	$0.25	$0

2. Refer to Table 7-5. The market quantity of oranges demanded per day is exactly 5 if the price of an orange, P, satisfies

a.	$1.00 < P < $1.50.
b.	$0.80 < P < $1.50.
c.	$0.80 < P < $1.00.
d.	$0.75 < P < $0.80.

3. Refer to Table 7-5. If the market price of an orange is $1.20, consumer surplus amounts to

a.	$0.70.
b.	$1.10.
c.	$1.40.
d.	$5.00.

4. Refer to Table 7-5. If the market price of an orange is $0.40,

a.	6 oranges are demanded per day, and total consumer surplus amounts to $4.45.
b.	6 oranges are demanded per day, and total consumer surplus amounts to $5.10.
c.	7 oranges are demanded per day, and total consumer surplus amounts to $5.35.
d.	7 oranges are demanded per day, and total consumer surplus amounts to $5.50.

5. Refer to Table 7-5. If the market price of an orange increases from $0.60 to $1.05, total consumer surplus

a.	increases by $2.90.
b.	decreases by $2.25.
c.	decreases by $2.70.
d.	decreases by $3.85.

6. Refer to Table 7-5. If the market price of an orange increases from $0.70 to $1.40, total consumer surplus

a.	increases by $2.50.
b.	decreases by $0.80.
c.	decreases by $2.50.
d.	decreases by $3.40.

7. Refer to Table 7-5. Who experiences the largest loss of consumer surplus when the price of an orange increases from $0.70 to $1.40?

a.	Alex
b.	Barb
c.	Carlos
d.	All three individuals experience the same loss of consumer surplus.

8. Refer to Table 7-5. Who experiences the largest gain in consumer surplus when the price of an orange decreases from $1.05 to $0.75?

a.	Alex
b.	Barb
c.	Carlos
d.	Alex and Barb experience the same gain in consumer surplus, and Carlos’s gain is zero.

9. Janine would be willing to pay $50 to see Les Misérables, but she buys a ticket for only $30. Janine values the performance at

a.	$20.
b.	$30.
c.	$50.
d.	$80.

Figure 7-10

10. Refer to Figure 7-10. At the equilibrium price, producer surplus is

a.	$200.
b.	$400.
c.	$450.
d.	$900.

11. Refer to Figure 7-10. If the government imposes a price ceiling of $70 in this market, then the new producer surplus will be

a.	$50.
b.	$100.
c.	$175.
d.	$350.

12. Refer to Figure 7-10. If the government imposes a price ceiling of $70 in this market, then producer surplus will decrease by

a.	$50.
b.	$125.
c.	$150.
d.	$200.

13. When a tax is imposed on a good, the

a.	supply curve for the good always shifts.
b.	demand curve for the good always shifts.
c.	amount of the good that buyers are willing to buy at each price always remains unchanged.
d.	equilibrium quantity of the good always decreases.

14. A tax levied on the sellers of a good shifts the

a.	supply curve upward (or to the left).
b.	supply curve downward (or to the right).
c.	demand curve upward (or to the right).
d.	demand curve downward (or to the left).

15. A tax levied on the buyers of a good shifts the

a.	supply curve upward (or to the left).
b.	supply curve downward (or to the right).
c.	demand curve downward (or to the left).
d.	demand curve upward (or to the right).

16. A tax placed on buyers of tires shifts the

a.	demand curve for tires downward, decreasing the price received by sellers of tires and causing the quantity of tires to increase.
b.	demand curve for tires downward, decreasing the price received by sellers of tires and causing the quantity of tires to decrease.
c.	supply curve for tires upward, decreasing the effective price paid by buyers of tires and causing the quantity of tires to increase.
d.	supply curve for tires upward, increasing the effective price paid by buyers of tires and causing the quantity of tires to decrease.

17. Suppose a tax is imposed on the buyers of fast-food French fries. The burden of the tax will

a.	fall entirely on the buyers of fast-food French fries.
b.	fall entirely on the sellers of fast-food French fries.
c.	be shared equally by the buyers and sellers of fast-food French fries.
d.	be shared by the buyers and sellers of fast-food French fries but not necessarily equally.

18. Which of the following quantities decrease in response to a tax on a good?

a.	the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus
b.	the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good
c.	the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus
d.	None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.

19. For a good that is taxed, the area on the relevant supply-and-demand graph that represents government’s tax revenue is a

a.	triangle.
b.	rectangle.
c.	trapezoid.
d.	None of the above is correct; government’s tax revenue is the area between the supply and demand curves, above the horizontal axis, and below the effective price to buyers.

Figure 8-3

The vertical distance between points A and C represents a tax in the market.

20. Refer to Figure 8-3. The equilibrium price before the tax is imposed is

a.	P1.
b.	P2.
c.	P3.
d.	P4.

21. Refer to Figure 8-3. The price that buyers effectively pay after the tax is imposed is

a.	P1.
b.	P2.
c.	P3.
d.	P4.

22. Refer to Figure 8-3. The price that sellers effectively receive after the tax is imposed is

a.	P1.
b.	P2.
c.	P3.
d.	P4.

23. Refer to Figure 8-3. The per unit burden of the tax on buyers is

a.	P3 - P1.
b.	P3 - P2.
c.	P2 - P1.
d.	P4 - P3.

24. Refer to Figure 8-3. The per-unit burden of the tax on sellers is

a.	P3 - P1.
b.	P3 - P2.
c.	P2 - P1.
d.	P4 - P3.

25. Refer to Figure 8-3. The amount of the tax on each unit of the good is

a.	P3 - P1.
b.	P3 - P2.
c.	P2 - P1.
d.	P4 - P3.

26. Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

a.	P3ACP1.
b.	ABC.
c.	P2DAP3.
d.	P1CDP2.

27. Refer to Figure 8-3. The amount of deadweight loss associated with the tax is equal to

a.	P3ACP1.
b.	ABC.
c.	P2ADP3.
d.	P1DCP2.

28. Refer to Figure 8-3. The loss in consumer surplus caused by the tax is measured by the area

a.	P1P3AC.
b.	P3ABP2.
c.	P1P3ABC.
d.	ABC.

29. Refer to Figure 8-3. The loss in producer surplus caused by the tax is measured by the area

a.	ABC.
b.	P1P3ABC.
c.	P1P2BC.
d.	P1C0.

30. Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government?

a.	Tax revenue = (P2 - P1)xQ1
b.	Tax revenue = (P3 - P1)xQ1
c.	Tax revenue = (P3 - P2)xQ1
d.	Tax revenue = (P3 - P1)x(Q2 - Q1)

31. Refer to Figure 8-3. Which of the following equations is valid for the deadweight loss of the tax?

a.	Deadweight loss = (1/2)(P2 - P1)(Q2 + Q1)
b.	Deadweight loss = (1/2)(P3 - P1)(Q2 + Q1)
c.	Deadweight loss = (1/2)(P3 - P2)(Q2 - Q1)
d.	Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1)

Table 13-5

The Flying Elvis Copter Rides

Quantity	Total Cost	Fixed Cost	Variable Cost	Marginal Cost	Average Fixed Cost	Average Variable Cost	Average Total Cost
	$50	$50	$0	--	--	--	--
	$150	A	B	C	D	E	F
	G	H	I	$120	J	K	L
	M	N	O	P	Q	$120	R

32. Refer to Table 13-5. What is the value of A?

a.	$25
b.	$50
c.	$100
d.	$200

33. Refer to Table 13-5. What is the value of B?

a.	$25
b.	$50
c.	$100
d.	$200

34. Refer to Table 13-5. What is the value of C?

a.	$25
b.	$50
c.	$100
d.	$200

35. Refer to Table 13-5. What is the value of G?

a.	$30
b.	$120
c.	$220
d.	$270

36. Refer to Table 13-5. What is the value of L?

a.	$60
b.	$135
c.	$240
d.	$270

37. Refer to Table 13-5. What is the value of O?

a.	$40
b.	$140
c.	$360
d.	$410

38. The most likely explanation for economies of scale is

a.	coordination problems.
b.	specialization of labor.
c.	increasing marginal cost.
d.	decreasing marginal cost.

39. In the long run Firm A incurs total costs of $1,050 when output is 30 units and $1,200 when output is 40 units. Firm A exhibits

a.	diseconomies of scale because total cost is rising as output rises.
b.	diseconomies of scale because average total cost is rising as output rises.
c.	economies of scale because total cost is rising as output rises.
d.	economies of scale because average total cost is falling as output rises.

40. When a firm experiences constant returns to scale,

a.	long-run average total cost is unchanged, even when output increases.
b.	long-run marginal cost is greater than long-run average total cost.
c.	long-run marginal cost is less than long-run average total cost.
d.	the firm is likely to experience coordination problems.

Figure 14-1

41. Refer to Figure 14-1. If the market price is P1, in the short run, the perfectly competitive firm will earn

a.	positive economic profits.
b.	negative economic profits but will try to remain open.
c.	negative economic profits and will shut down.
d.	zero economic profits.

42. Refer to Figure 14-1. If the market price is P2, in the short run, the perfectly competitive firm will earn

a.	positive economic profits.
b.	negative economic profits but will try to remain open.
c.	negative economic profits and will shut down.
d.	zero economic profits.

43. Refer to Figure 14-1. If the market price is P3, in the short run, the perfectly competitive firm will earn

a.	positive economic profits.
b.	negative economic profits but will try to remain open.
c.	negative economic profits and will shut down.
d.	zero economic profits.

44. Refer to Figure 14-1. If the market price is P4, in the short run, the perfectly competitive firm will earn

a.	positive economic profits.
b.	negative economic profits but will try to remain open.
c.	negative economic profits and will shut down.
d.	zero economic profits.

45. Refer to Figure 14-1. Which of the four prices corresponds to a perfectly competitive firm earning positive economic profits in the short run?

a.	P1
b.	P2
c.	P3
d.	P4

46. Refer to Figure 14-1. Which of the four prices corresponds to a perfectly competitive firm earning zero economic profits in the short run?

a.	P1
b.	P2
c.	P3
d.	P4

47. Refer to Figure 14-1. Which of the four prices corresponds to a perfectly competitive firm earning negative economic profits in the short run but trying to remain open?

a.	P1
b.	P2
c.	P3
d.	P4

48. Refer to Figure 14-1. Which of the four prices corresponds to a perfectly competitive firm earning negative economic profits in the short run and shutting down?

a.	P1
b.	P2
c.	P3
d.	P4

49. Which of the following industries is most likely to exhibit the characteristic of free entry?

a.	nuclear power
b.	municipal water and sewer
c.	dairy farming
d.	airport security

50. When buyers in a competitive market take the selling price as given, they are said to be

a.	market entrants.
b.	monopolists.
c.	free riders.
d.	price takers.

51. When firms are said to be price takers, it implies that if a firm raises its price,

a.	buyers will go elsewhere.
b.	buyers will pay the higher price in the short run.
c.	competitors will also raise their prices.
d.	firms in the industry will exercise market power.

52. Which of the following is a characteristic of a natural monopoly?

a.	Marginal cost declines over large regions of output.
b.	Average total cost declines over large regions of output.
c.	The product sold is a natural resource such as diamonds or water.
d.	All of the above are correct.

53. When a firm's average total cost curve continually declines, the firm is a

a.	government-created monopoly.
b.	natural monopoly.
c.	revenue monopoly.
d.	All of the above are correct.

Figure 15-11

54. Refer to Figure 15-11. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to

a.	$0.
b.	$500.
c.	$1,000.
d.	$2,000.

55. Refer to Figure 15-11. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to

a.	$0.
b.	$250.
c.	$500.
d.	$1,000.

56. Refer to Figure 15-11. If the monopoly firm is not allowed to price discriminate, then the deadweight loss amounts to

a.	$50.
b.	$100.
c.	$500.
d.	$1,000.

57. Refer to Figure 15-11. If the monopoly firm perfectly price discriminates, then the deadweight loss amounts to

a.	$0.
b.	$100.
c.	$200.
d.	$500.

58. Refer to Figure 15-11. If there are no fixed costs of production, monopoly profit without price discrimination equals

a.	$500.
b.	$1,000.
c.	$2,000.
d.	$4,000.

59. Refer to Figure 15-11. If there are no fixed costs of production, monopoly profit with perfect price discrimination equals

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