Suppose the world price of fish is $10 each and the world price of chips is $15 each.

  1. Suppose the world price of fish is $10 each and the world price of chips is $15 each. If each nation’s objective is to collect as much revenue as possible, how will they each organize production?

a. Ireland will specialize completely in chips and England will specialize completely in fish

b. Ireland will specialize completely in fish and England will specialize completely in chips

c. both will produce only chips

d. both will each make 5 fish and England will spend the rest of is time making chips

e. each nation will divide its time in the ratio 1.5 to 1 in favor of chips, because this is the ratio of the prices.

  1. If the cross price elasticity of demand between widgets and kumquats is -2.0, one can conclude that

a. widgets and kumquats are substitutes and a rise in the price of one will cause an increase in the demand for the other

b. widgets and kumquats are complements and a rise in the price of one will cause an increase in the demand for the other

c. widgets and kumquats are substitutes and a rise in the price of one will cause a decrease in the demand for the other

d. widgets and kumquats are complements and a rise in the price of one will cause a decrease in the demand for the other

e. none of the above

  1. When we say that Poland has a comparative advantage in producing sausages, we mean that Italy

a. can produce more sausages than beer, the only other commodity produced there

b. is the low cost producer of sausages

c. can produce more sausages than can any other country

d. can produce nothing but sausages

e. both (b) and (c) are correct

  1. If the income elasticity of demand for kumquats is 0 (yes, “zero”), a rise in the incomes of kumquat consumers will lead to
    1. a rise in the equilibrium price and quantity of kumquats
    2. a fall in the equilibrium price and quantity of kumquats
    3. a rise in the equilibrium price of kumquats, but a fall in the equilibrium quantity
    4. a fall in the equilibrium price of kumquats, but a rise in the equilibrium quantity
    5. no change in the equilibrium price or quantity of kumquats
  1. If the demand for corn is elastic, a reduction in the supply of corn will cause

a. a reduction in expenditures on corn

b. a reduction in expenditures on corn only if the supply of corn is elastic

c. a change in expenditures on corn that may be positive or negative, depending on the elasticity of supply of corn

d. an increase in expenditures on corn only if the supply of corn is inelastic

e. an increase in expenditures on corn

Questions 23-25 are based on the following information:

All flimflams are made in either Japan or Korea. Americans are the sole purchasers of these flimflams, and

they do not care whether they buy flimflams made in Korea or those made in Japan. Assume an outbreak of

Japanese flu kills many of the highly skilled Japanese workers who produce flimflams. Korean workers are

unaffected, because no workers ever move or travel between Korea and Japan. (Hint: What effect will this flu have on wages, and thus production costs, in Japan?)

Let the price of flimflams be P and the total quantity of them be Q; let the amount produced in Korea be Qk

and the amount produced in Japan be Qj. Suppose you observe the followingchangesas a result of this episode:

%?Q = -40%

%?Qk = +25%

%?Qj = -50%

%?P = +20%

  1. Given these observations, what is the elasticity of the demand for flimflams?

a. -1.5

b. -2

c. -1

d. -0.5

e. It cannot be determined, because the demand for flimflams shifts in this problem

  1. Given these observations, what is the elasticity of the Japanese supply of flimflams?

a. -1

b. +1

c. +0.5

d. +2

e. It cannot be determined, because the Japanese supply curve shifts in this problem

  1. Given these observations, what is the elasticity of the Korean supply of flimflams.

a. +1.25

b. +2.5

c. -2.0

d. +0.8

e. It cannot be determined, because the Korean supply curve shifts in this problem.

26. The figure above shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators. What is the firm’s economic profit in the long run is2) _______

a. $900.

b. $600.

c. zero.

d. $2,400.

e. $1,200

27. For a firm in perfect competition, the marginal cost curve intersects the average total cost curve

a. at no point.

b. at the minimum average total cost.

c. to the left of the minimum average total cost.

d. to the right of the minimum average total cost.

e. above the average total cost curve

  1. In the above graph, the intersection of curve A and curve C is the

a. Shutdown point

b. Long-run equilibrium price and quantity

c. Point where the producer is indifferent between producing and shutting down

d. profit-maximizing price and quantity

e. Both (A) and (C) are correct

  1. In the above graph, the average fixed cost curve is:

a. Labeled B

b. Labeled C

c. Not shown

d. Responsible for the distance between curves B and C getting smaller as quantity increases

e. Both C and D

  1. An example of a negative consumption externality is:

a. Honey production and orange production

b. Flu vaccinations

c. Pollution

d. Loud parties

e. Beautiful architecture that was privately funded

31. In the figure above, if the market is unregulated, the price will be

a. $250 per unit.

b. $150 per unit.

c. $200 per unit.

d. $100 per unit.

e. Depends on if the producer is a price taker or a price searcher

32. Total cost is the sum of fixed costs and

a. implicit costs.

b. explicit costs.

c. accounting costs.

d. variable costs.

e. marginal costs

33. A period of time in which the quantity of at least one resource used by a firm is fixed is called

a. the market period.

b. the intermediate run.

c. the short run.

d. the long run.

e. the chicken run

34. Consider the perfectly competitive firm in the above figure. If price equals 10, what will the firm choose to do in the short run and why?

a. Shut down because the firm incurs an economic loss.

b. Stay in business because the firm is making an economic profit.

c. Stay in business because the firm’s economic loss is less than fixed costs.

d. Stay in business because it is earning a normal profit (that is, zero economic profit or loss).

e. Shut down because the price is below the firms shutdown point.

35. A firm in perfect competition maximizes its profit by producing the output at which its marginal cost equals its

a. marginal revenue.

b. average fixed cost.

c. average variable cost.

d. price.

e. Both a. and d. are correct.

36. In the above figure, the total fixed cost curve is curve

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