Professor: M.

Rush
ECO 2023
SPRING 2014
FINAL EXAM
This test is governed by UFs academic honesty code. It is intended to have 34
multiple choice questions. Please check to be sure your copy has all 34. Choose
the best answer for each question.
The next is important: Unless you are specifically told otherwise, on this test do
not assume that demand or supply is either perfectly elastic or perfectly inelastic.
On the bubble sheet, please enter:
1. Your name and initials
2. Your UF ID number
3. Form code: A
4. Sign your name on the bubble sheet.
TURN OFF ALL CELL PHONES AND OTHER
COMMUNICATION DEVICES
Check that the form code and UF ID number you bubbled-in are correct now. Also check
to be sure your name is correctdo it now. I investigated the rumor that the ability to
correctly record these had been mastered by a few students at FSU. This rumor turned
out to be false. But, the rumor that an accounting major and a journalism major did
successfully record these on a test is true. These students have since been bronzed and
are on display outside their respective colleges to serve as an inspiration for all other
accounting and journalism students.
CHECK YOUR FORM CODE AND UF ID NUMBER. IF YOU GET EITHER OF THESE
WRONG, YOUR TEST MIGHT NOT BE GRADED AND IF IT IS GRADED, YOU WILL
LOSE 2 QUESTIONS!
I have become increasingly concerned that some students are at a real disadvantage
because they are unwilling to ask questions during the exam while others ask a lot of
questions. Hence, to level the playing field, I have decided to eliminate all questions
during the test. I dont like this policy, but it seems the fairest policy.
Do not ask questions of me or the TAs; in the interest of fairness I
have instructed them not to answer any questions during the exam.
You will have one hour (60 minutes) to complete the exam and bubble in all your
answers. When the TAs say that time is up, you must hand in your exam. We will not
give extra time to finish bubbling in the answers, so be sure you are done when the 60
minutes are up. Of course, you may hand in your test at any time before the 60 minutes
are up.
An answer key will be posted on the class web page tomorrow.
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The test scores AND GRADES will be on class web page probably by
Friday.
Once you see the answer key, you might have a question about why one answer
is right and another is wrong. For these questions, email me at
mark.rush@warrington.ufl.edu Do NOT email the grader about these questions!
After the scores are posted, if you think your posted score is incorrect, then email
the grader at eco2023.grader@warrington.ufl.edu If you email me about your test
score, I will not forward the email nor respond to youyou MUST email the
grader. You have one week after the curved score is posted to request a grade
check. After a week, the score will not be changed. If the web reports what you
bubbled in for each question and you ask the grader to check an answer because
you believe you bubbled in something other than what is reported and the
reported answer on the web is correct, you will lose 1 additional question.

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1) When the efficient quantity of purses is produced, then the
A) total consumer surplus from purses exceeds the total producer surplus from purses.
B) total producer surplus from purses exceeds the total consumer surplus from purses
C) sum of the total consumer surplus and the total producer surplus is as large as possible.
D) marginal social benefit of a purse exceeds the marginal social cost by as much as
possible.
E) None of the above are correct.
2) Suppose the demand for Taco Bell tacos is elastic. If Taco Bell raises the price of its
tacos, then the
A) quantity of Taco Bell tacos demanded increases.
B) total revenue Taco Bell receives for its tacos increases.
C) total revenue Taco Bell receives for its tacos decreases
D) None of the above answers is correct.
3) Tennis balls and tennis rackets are complements and tennis rackets fall in price.
Simultaneously there are technological advances in the production of tennis balls.
As a result, the equilibrium price of a tennis ball ____ and the equilibrium quantity
____.
A) rises; increases
B) falls; decreases
C) probably changes but more information is needed to determine if the price rises, falls, or
does not change; increases
D) rises; probably changes but more information is needed to determine if the quantity rises,
falls, or does not change
E) None of the above answers is correct.
4) Since about 1979, the distribution of income in the United States has ____
A) become more equal.
B) become less equal.
C) not changed its degree of inequality.
D) changed so that the distribution today is no longer comparable to that in 1979.
5) Common resources are ____ by an unregulated private market in part because ____.
A) under used; the marginal cost of production is too high
B) over used; common resources are nonexcludable and nonrival
C) under used; the good is nonexcludable
D) over used; marginal benefit of consumption is too high
E) over used; the resource is nonexcludable
6) A difference between a perfectly competitive industry and a monopoly is that
A) in the long run, firms in a perfectly competitive industry make a normal profit and a
monopoly can make an economic profit.
B) a firm in a perfectly competitive industry can perfectly price discriminate but a monopoly
cannot.
C) only monopolies have an incentive to maximize profit.
D) perfectly competitive firms can have a public franchise.
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7) Currently there are talks of decreasing Pell grants and nationwide colleges are
hiking tuition. Suppose the cost of acquiring human capital increases. As a result,
the equilibrium wage rate paid high-skilled, high-human capital workers will
A) rise.
B) not change.
C) fall.
D) More information is needed to answer the question.

8) Plywood is used to construct new homes, which are a normal good. If peoples
incomes rise, which of the figures above best illustrates the effect the increase in
income has in the market for plywood?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
9) The number of farmers growing tomatoes increases. As a result, the price of a
pound of tomatoes ____ and the quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
Price (dollars per
ton of plywood)
Price (dollars per
ton of plywood)
Price (dollars per
ton of plywood)
Price (dollars per
ton of plywood)
Quantity (tons of
plywood per month)
Quantity (tons of
plywood per month)
Quantity (tons of
plywood per month)
Quantity (tons of
plywood per month)
Figure B Figure A
D
1
D
2
S
D
2
D
1
S
Figure D Figure C
D
S
2
D
S
1
S
1
S
2
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Sears
Lower prices Dont lower prices


Lower
prices
S: $5 million
W: $5 million
S: $11 million
W: $3 million
WalMart Dont
lower
prices
S: $15 million
W: $2 million
S: $20 million
W: $11 million
10) Sears and Wal-Mart must decide whether to lower their prices, based on the
potential economic profits shown in the table above. (An S indicates Sears profit
and a W indicates Wal-marts profit.) Who has a dominant strategy?
A) Walmart has a dominant strategy but Sears does not.
B) Sears has a dominant strategy but Walmart does not.
C) Both Walmart and Sears have dominant strategies.
D) Neither Walmart nor Sears has a dominant strategy
E) More information is needed to determine if either Sears or Walmart has a dominant
strategy.

11) The above figure shows the Lorenz curve for wealth for the nation of Rusha. The
richest 20 percent of the population own what percent of wealth?
A) 20 percent
B) 40 percent
C) 60 percent
D) 80 percent
E) None of the above are correct.
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12) Janes Garage Cleaning is a monopolistically competitive firm that currently cleans
40 garages a week. Janes marginal cost is $35, her marginal revenue is $40, and her
average total cost is $40. Jane is
A) maximizing her profit and is earning an economic profit.
B) not maximizing her profit but is earning an economic profit anyway.
C) maximizing her profit and is incurring an economic loss.
D) not maximizing her profit and is earning a normal profit.
E) not maximizing her profit but more information is needed to determine if she is earning
an economic profit or a normal profit.
13) Externalities arise
A) because of property rights.
B) because of an absence of property rights.
C) when the good is rival.
D) when the good is sold in competitive markets.
E) None of the above answers are correct.
14) Suppose that the price of flour used to produce bagels increases. Hence the
equilibrium price of a bagel ____ and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
15) If the price is lower than a monopolistically competitive firms average total cost,
the firm will
A) immediately shut down.
B) continue to produce if the price exceeds the average fixed cost.
C) continue to produce if the price exceeds the average variable cost.
D) shut down if the price exceeds the average fixed cost.
E) shut down if the price is less than the average fixed cost.
16) Government bureaucracies over-provide public goods and grow larger because of
their goal of ____ combined with ____ of the voters.
A) budget maximization; rational ignorance
B) budget minimization; irrational intelligence
C) budget maximization; minimum differentiation
D) budget maximization; irrational exuberance
E) minimum differentiation; budget maximization
17) For a common resource, efficiency requires that the marginal ____ equals the
marginal ____.
A) private benefit; private cost
B) social benefit; private cost
C) external benefit; external cost
D) social benefit; external cost
E) social benefit; social cost
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18) (This question is an out-of-the-book question from Chapter 16.) If I order a pizza
and invite my neighbors to eat it, the pizza is
A) a private good.
B) a common resource.
C) a public good because many people ate it.
D) either a common resource or a public good depending on whether it is overused.
E) produced by a natural monopoly.
Sears
Lower prices Dont lower prices


Lower
prices
S: $0 million
W: $7 million
S: $8 million
W: $3 million
WalMart Dont
lower
prices
S: $5 million
W: $6 million
S: $2 million
W: $1 million
19) Sears and Wal-Mart must decide whether to lower their prices, based on the
potential economic profits shown in the table above. (An S indicates Sears profit
and a W indicates Wal-marts profit.) Who has a dominant strategy?
A) Walmart has a dominant strategy but Sears does not.
B) Sears has a dominant strategy but Walmart does not.
C) Both Walmart and Sears have dominant strategies.
D) Neither Walmart nor Sears has a dominant strategy
E) More information is needed to determine if either Sears or Walmart has a dominant
strategy.
20) A technological improvement lowers the cost of producing computer chips. As a
result, the equilibrium price of a computer chip ____ and the equilibrium quantity
____.
A) rises; increases
B) rises; decreases
C) falls; decreases
D) falls; increases
21) As a natural monopoly inflates its costs under rate of return regulation, which of the
following occurs?
A) The amount of output produced by the regulated firm increases.
B) The price of the product produced by the regulated firm rises.
C) The profits enjoyed by the shareholders of the regulated firm increase.
D) The deadweight loss decreases.
22) Product variety for consumers is a gain from
A) perfect competition.
B) monopolistic competition.
C) monopoly.
D) oligopoly.
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23) Which of the following business practices, if proven to exist, will always be held to
be illegal under U.S. antitrust law?
A) Tying arrangements.
B) Price fixing among competitors.
C) Exclusive dealing.
D) All of the above.
24) Because of cost hikes, the price of a bowling ball rises. As a result, the equilibrium
price of bowling shoes ____ and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
25) Suppose that a new kind of fertilizer allows farmers to produce more barley than
before while simultaneously research is published showing that eating barley can
cause severe headaches. The shift of the supply curve is equal in magnitude to the
shift of the demand curve. As a result, the equilibrium price of barley ____ and the
equilibrium quantity ____.
A) does not change; increases
B) rises; decreases
C) falls; does not change
D) might rise, fall, or not change but more information is needed; decreases
E) falls; might increase, decrease, or not change but more information is needed
26) Ralph is a corn farmer from Nebraska. In the short-run, Ralph can make an
economic profit, but in the long-run the best he can do is to make a normal profit.
What is the best explanation for why Ralph cannot make an economic profit in the
long-run?
A) If he is making an economic profit, existing corn farmers will compete with Ralph to
drive prices down, which will reduce profits
B) If he is making an economic profit, new firms will enter the market because there are no
barriers to entry
C) The government wont allow an economic profit in the long run
D) As Ralphs machines get older, his ability to earn profits decreases
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Production possibilities

Possibility
Pizza
(per hour)
Soda
(cases per hour)
A 0 100
B 1 95
C 2 80
D 3 60
E 4 35
F 5 0
27) In the above table, the opportunity cost of the 4th pizza is
A) 4 pizzas.
B) 60 cases of soda.
C) 35 cases of soda.
D) 20 cases of soda.
E) None of the above are correct.
28) Suppose a monopolistically competitive firm can sell 10 units of output for $21. In
order to sell 11 units of output, the firm must lower its price to $20. What is the
marginal revenue of the 11th unit?
A) $41
B) $21
C) $20
D) $10
E) $1
29) A free rider is a
A) public good.
B) private good.
C) person who enjoys the benefits of a good or service without paying for it.
D) government policy designed to correct the public good problem.
30) In order for a tax to eliminate the deadweight loss from pollution, the tax must be
set equal to the
A) marginal private cost.
B) marginal external cost.
C) marginal social cost.
D) marginal private benefit.
E) marginal social benefit.
31) When compared to a purely competitive market, a single-price monopolist
produces ____ output and charges a ____ price.
A) more; lower
B) less; lower
C) more; higher
D) less; higher
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32) The figure above shows the demand and cost curves for a single-price monopolist.
The firm will produce ____ units and set a price of ____ per unit.
A) 15; $20
B) 10; $20
C) 10; $30
D) 10; $10
E) 25; $20
33) The figure above shows the demand and cost curves for a single-price monopolist.
The firms total revenue equals _____ and its total cost equals _____.
A) $300; $300
B) $200; $200
C) $100; $200
D) $300; $100
E) $300; $200
34) Keeping in mind that you are to email the grader (within 1 week after the test scores
are posted) if you have a question about your test score and you are to email me if
you have a question about a question, then the director is so fat that
A) we took a picture of him last Christmas and its still printing.
B) the only reason he opens his email is because he heard it contained spam.
C) when he got his shoes shined, he had to take the guys word ofr it.
D) when he wears a yellow raincoat, people see him and yell Taxi!.
E) Weight watchers wont look at him.