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Professor: M.

Rush
ECO 2023
SPRING 2014
MAKE UP TEST
Read all instructions on this page
ThistestisgovernedbyUFsacademichonestycode.

Thistesthas34questions.IFyouareusingthistesttomakeupfor
missingeitherMidterm1or2,answerthefirst30questions;ifyou
usingthistesttomakeupformissingthefinalexam,answerall34
questions.Choosethebestanswerforeachquestion.

Unlessyouarespecificallytoldotherwise,onthistestdonotassume
thatdemandorsupplyiseitherperfectlyelasticorperfectlyinelastic.

Onthebubblesheet,pleaseenter:
1.Yournameandinitials
2.YourUFIDnumber
3.Formcode:A
4.Signyournameonthebubblesheet.
Check if 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 3 POINTS!

TURN OFF ALL CELL PHONES AND OTHER


COMMUNICATION DEVICES
You maynotuseacellphoneoranyothersortofdevicethatallowsforcommunication
asyourcalculator.
E CO 2023 MAKE UP E XAM S P RI NG 2014

2
Ihavebecomeincreasinglyconcernedthatsomestudentsareatarealdisadvantage
becausetheyareunwillingtoaskquestionsduringtheexamwhileothersaskalotof
questions.Hence,toleveltheplayingfield,Ihavedecidedtoeliminateallquestions
duringthetest.Idontlikethispolicy,butitseemsthefairestpolicy.
DonotaskquestionsofmeortheTAs;intheinterestoffairnessI
haveinstructedthemnottoansweranyquestionsduringtheexam.

Youwillhaveonehour(60minutes)tocompletetheexamandbubbleinallyour
answers.WhentheTAssaythattimeisup,youmusthandinyourexam.Wewillnot
giveextratimetofinishbubblingintheanswers,sobesureyouaredonewhenthe60
minutesareup.Ofcourse,youmayhandinyourtestatanytimebeforethe60minutes
areup.

Ananswerkeywillbepostedontheclasswebpagetomorrow.
Thetestscoreswillbeonclasswebpagewithinafewdays.

Onceyouseetheanswerkey,youmighthaveaquestionaboutwhyoneanswer
isrightandanotheriswrong.Forthesequestions,emailmeat
mark.rush@warrington.ufl.eduDoNOTemailthegraderaboutthesequestions!
Afterthescoresareposted,ifyouthinkyourpostedscoreisincorrect,thenemail
thegraderateco2023.grader@warrington.ufl.eduIfyouemailmeaboutyourtest
score,IwillnotforwardtheemailnorrespondtoyouyouMUSTemailthe
grader.Youhaveoneweekafterthecurvedscoreispostedtorequestagrade
check.Afteraweek,thescorewillnotbechanged.Ifthewebreportswhatyou
bubbledinforeachquestionandyouaskthegradertocheckananswerbecause
youbelieveyoububbledinsomethingotherthanwhatisreportedandthe
reportedansweronthewebiscorrect,youwilllose1additionalquestion.

E CO 2023 MAKE UP E XAM S P RI NG 2014



3
1) The Coase theorem is the proposition that if property rights exist and transactions
costs are low,
A) external costs result in deadweight losses.
B) external benefits result in deadweight losses.
C) efficiency will result without need for further government action.
D) the government needs to intervene in the market to guarantee efficiency.
E) None of the above are correct.
2) The distribution of income in the United States has become more unequal between
1970 and 2014. One explanation for this trend is that advances in technologies have
____ low-skilled labor and ____ high-skilled labor.
A) decreased the demand for; increased the demand for
B) increased the demand for; decreased the demand for
C) decreased the supply of; increased the supply of
D) increased the supply of; decreased the supply of
E) increased the supply of; increased the demand for
Sears

Lower prices
Dont lower
prices


Lower
prices
S: $5 million
W: $9 million
S: $11 million
W: $8 million
Walmart Dont
lower
prices
S: $30 million
W: $4 million
S: $20 million
W: $40 million
3) Sears and Wal-Mart must decide whether to lower their prices, based on the
potential economic profits shown in the table above. In the above table, 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) None of the above are correct.
4) More pizza delivery companies open. As a result, the equilibrium price of a
delivered pizza ____ and the equilibrium quantity ____.
A) rises; increases
B) falls; decreases
C) rises; decreases
D) falls; increases
E CO 2023 MAKE UP E XAM S P RI NG 2014

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5) When the price rises 4 percent, the quantity demanded decreases 10 percent. Hence
the elasticity of demand equals
A) 40.0
B) 25.0
C) 0.4
D) 2.5
E) None of the above are correct.
6) If the marginal social cost of generating a kilowatt of electricity is $0.10 and the
marginal private cost is $0.08, what is the marginal external cost?
A) $0.18
B) $0.10
C) $0.08
D) $0.02
7) Pizza and hamburgers are substitutes for consumers. A fall in the price of a pizza
____ the price of a hamburger and ____ the quantity of hamburgers.
A) raises; increases
B) raises; decreases
C) lowers; increases
D) lowers; decreases
S
o
d
a
s

(
m
i
l
l
i
o
n
s


p
e
r

m
o
n
t
h
)
Pizzas (millions per month)
b a
c
30
0
40 50 20
10
20
30
40
50
10

8) In the figure above,
A) moving from point a to point b would require new technology.
B) production at point b is efficient whereas production at point a is not efficient.
C) some resources must be unemployed if production is at point c.
D) the opportunity cost of an additional pizza decreases as more pizza is produced.
E CO 2023 MAKE UP E XAM S P RI NG 2014

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9) When a tax is imposed on the producers of a good or service, then
A) in general the producers pay all the tax.
B) in general the consumers pay all the tax.
C) the consumers pay a larger part of the tax as the demand for the product becomes less
elastic.
D) the consumers pay a larger part of the tax as the demand for the product becomes more
elastic.
10) What will happen to the equilibrium price and quantity of orange juice if orange
juice is discovered to help prevent colds?
A) The effect on the quantity is uncertain and the price will fall.
B) The quantity will increase and the effect on the price is uncertain.
C) The quantity will decrease and the price will rise.
D) The quantity will increase and the price will fall.
E) The quantity will increase and the price will rise.
11) Boxed macaroni and cheese is an inferior good and peoples incomes rise. As a
result, the equilibrium price of boxed macaroni and cheese ____ and the equilibrium
quantity ____.
A) falls; decreases
B) falls; increases
C) falls; does not change
D) rises; decreases
E) rises; increases
Quantity
(pizzas per hour)
Total cost, TC
(dollars per hour)
0 10
1 18
2 30
3 48
4 70
5 98
6 120
12) Giuseppes Pizza is a perfectly competitive firm. The firms costs are shown in the
table above. If Giuseppe shut down, in the short run its economic loss is _____ per
hour.
A) $0
B) $48
C) $10
D) More information is needed to answer the question.
E CO 2023 MAKE UP E XAM S P RI NG 2014

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13) Suppose firms in a monopolistically competitive market are earning an economic
profit. As new firms make a similar, albeit differentiated product, the economic
profit of each existing firm ____.
A) increases
B) decreases
C) does not change
D) More information is needed to answer the question
14) Credit conditions improve. As a result, the equilibrium price of an automobile ____
and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
E) None of the above is correct.
15) The rainforest is an example of a _____ because it is _____.
A) private good; rival and excludable
B) public good; nonrival and nonexcludable
C) common resource; rival and excludable
D) common resource; nonexcludable and rival
E) public good; nonrival and excludable
16) The government imposes regulations on petroleum producers that raise their costs.
The price consumers pay for petroleum ____ the least if the elasticity of demand for
petroleum is ____.
A) falls; inelastic
B) falls; elastic
C) rises; inelastic
D) rises; elastic
17) If the Lorenz curve for income moves closer to the 45 line, then the
A) distribution of income has become more unequal.
B) distribution of income has become more equal.
C) median household income increased.
D) median household income decreased.
E) mean (average) household income increased.
18) Suppose that Coca Cola and Pepsi agree to charge the same prices for their soft
drinks. This agreement would
A) always be legal under the antitrust laws.
B) be legal as long as Herfindahl-Hirschman index is less than 1,000.
C) be legal as long as the firms had a cost justification for setting prices.
D) always be illegal under the antitrust laws.
E CO 2023 MAKE UP E XAM S P RI NG 2014

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19) In the short run, a(n) ____ firm always earns an economic profit.
A) monopoly
B) monopolistically competitive
C) perfectly competitive
D oligopolistic
E) None of the above because there is no industry in which a firm always earns an
economic profit in the short run.
20) The total cost of producing 4 sodas is $12, and the total cost of producing 5 sodas is
$20. Then the marginal cost of the 5th soda is
A) $3.00
B) $2.00
C) $4.00
D) $5.00
E) $8.00
21) For a produce with an external benefit, if less than the efficient amount is produced,
then for the last unit produced
A) marginal social benefit exceeds marginal social cost.
B) marginal social benefit equals marginal social cost.
C) marginal social cost exceeds marginal social benefit.
D) the deadweight loss is zero.
22) The cheese used to produce tacos in restaurants rises in price. As a result, the
equilibrium price of a taco ____ and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
23) The labor supply curve has a positive slope if
A) the substitution effect outweighs the income effect.
B) the income effect outweighs the substitution effect.
C) the wage rate exceeds the reservation wage.
D) the demand for labor is elastic.
E) the demand for labor is inelastic.
24) An oligopolist firm cheats on a collusive price-fixing agreement by setting
A) a lower price and producing less output than agreed.
B) a higher price and producing more output than agreed.
C) a higher price and producing less output than agreed.
D) a lower price and producing more output than agreed.
E CO 2023 MAKE UP E XAM S P RI NG 2014

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P
r
i
c
e

(
d
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l
l
a
r
s

p
e
r

p
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n
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)
P
r
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e

(
d
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)
Quantity (pounds) Quantity (pounds)
Figure B Figure A
D
1
D
2
S
D
2
D
1
S
P
r
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e

(
d
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)
Quantity (pounds) Quantity (pounds)
Figure D Figure C
D
S
2
D
S
1
S
1
S
2

25) The figures above show the market for beef. If beef is a normal good and peoples
incomes increase, which figure shows the consequences?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
Sears

Lower prices
Dont lower prices


Lower
prices
S: $5 million
W: $5 million
S: $17 million
W: $3 million
Walmart Dont
lower
prices
S: $3 million
W: $11 million
S: $2 million
W: $12 million
26) Sears and Wal-Mart must decide whether to lower their prices, based on the
potential economic profits shown in the table above. 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 CO 2023 MAKE UP E XAM S P RI NG 2014

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27) Which of the following is the BEST example of a common resource?
A) A can of Mountain Dew
B) Fish in the ocean
C) A gold mine
D) Cable television
E) National defense
28) People are increasingly coming to prefer coffee, tea, fruit juices, and water to soft
drinks. As a result, the price of soft drinks ____ and the quantity ____.
A) falls; does not change
B) rises; decreases
C) probably changes but more information is needed to determine if the price rises or falls;
decreases
D) falls; decreases
E) None of the above answers is correct.
29) Under an average cost pricing rule, a regulated natural monopoly
A) makes an economic profit, and there is a deadweight loss.
B) makes a normal profit, and there is no deadweight loss.
C) makes a normal profit, and there is a deadweight loss.
D) incurs an economic loss, and there is a deadweight loss
E) incurs an economic loss, and there is no deadweight loss.
30) 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.
IF YOU ARE MAKING UP EITHER MIDTERM 1 OR MIDTERM 2
STOP NOW; DO NOT ANSWER THE NEXT 4 QUESTIONS; IF YOU
ARE MAKING UP THE FINAL EXAM, YOU MUST ANSWER THE
NEXT 4 QUESTIONS.
E CO 2023 MAKE UP E XAM S P RI NG 2014

10

31) In the above figure, if a single-price monopolist produces the profit-maximizing
quantity and charges the profit-maximizing price, the consumer surplus is equal to
area ____.
A) hbcd.
B) fjem.
C) abc.
D) cde
E) gcem.
32) A single-price monopoly can sell 2 units for $8.50 per unit. In order to sell 3 units,
the price must be $8.00 per unit. The marginal revenue from selling the third unit is
A) $24.00.
B) $8.50.
C) $7.00.
D) $6.50.
E) None of the above answers are correct.
33) Janes Garage Cleaning is a monopolistically competitive firm that currently cleans
80 garages a week. Janes marginal cost is $40, her average total cost is $40, and the
price of cleaning a garage is $50. Jane
A) is maximizing her profit and is earning a normal profit.
B) is not maximizing her profit and is earning an economic profit.
C) might be maximizing her profit and is incurring an economic loss.
D) might be maximizing her profit and is earning an economic profit.
E) is not maximizing her profit and is earning an economic profit anyway.
34) To eliminate the inefficiency resulting from an external cost, the government can
impose a tax on producers that is equal to the
A) MSB.
B) MC.
C) MB.
D) MSC.
E) marginal external cost