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Professor: M.

Rush
ECO 2023
SUMMER A 2012
FINAL EXAM
This test is governed by UFs academic honesty code. It is intended to have 33
multiple choice questions. Please check to be sure your copy has all 33. 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 6 POINTS (which equals 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.

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An answer key will be posted on the class web page later this
evening at about 9:30.
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) If the size of the income effect from a wage hike equals the size of the substitution
effect from a wage hike, then the supply of labor curve
A) has a positive slope.
B) has a negative slope.
C) is vertical.
D) is horizontal
E) is undefined.
2) Which of the following would best be analyzed using game theory?
A) the decisions of a perfectly competitive wheat farmer.
B) the decisions of AMD, one of the two producers of CPU chips for computers.
C) the decisions of GRU, a regulated natural utility.
D) the decisions of Taco Bell, one of many fast food producers
E) the decisions of the Gainesville Sun, if it is the only local newspaper.
3) An import quota makes domestic consumers ____ and makes domestic producers
____.
A) better off; better off
B) better off; worse off
C) worse off; better off
D) worse off; worse off
4) Suppose a medical study reveals new benefits to consuming beef and at the same
time a bumper corn crop reduces the cost of feeding steers. The equilibrium price of
beef will
A) fall.
B) perhaps rise, fall, or stay the same, but more information is needed to determine which it
does.
C) stay the same.
D) rise.
5) The Sherman Act
i) prohibits a large firm from setting a lower price than the price charged by its smaller
competitors.
ii) prohibits a firm from setting a higher price if its competitors raise their prices.
iii has been interpreted by the Supreme Court so that price fixing among competitors is
per se illegal.
A) i only.
B) ii only.
C) iii only.
D) i and iii.
E) ii and iii.
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6) The technology used to produce a product advances. Which of the following
happens?
A) A leftward shift of the supply curve and both the equilibrium price and equilibrium
quantity fall.
B) A rightward shift of the supply curve and both the equilibrium price and equilibrium
quantity fall.
C) A rightward shift of the supply curve and the equilibrium price falls while the
equilibrium quantity increases.
D) A rightward shift of the supply curve and both the equilibrium price and equilibrium
quantity rise.
7) A monopolistically competitive firms demand curve shifts leftward. The firm
responds by ____ its price and ____ the quantity it produces.
A) raising; decreasing
B) raising; increasing
C) lowering; decreasing
D) lowering; increasing

8) The Lorenz curves in the above figure imply that
A) income is distributed more unequally than wealth.
B) wealth is distributed more unequally than income.
C) the amount of the nations income exceeds the amount of its wealth.
D) the amount of the nations wealth exceeds the amount of its income.
9) If some firms exit a perfectly competitive market, the profit of the remaining firms
____; if some firms enter a perfectly competitive market, the profit of each existing
firm ____.
A) decreases; is unchanged
B) increases; decreases
C) increases; is unchanged
D) decreases; increases
E) is unchanged; is unchanged
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10) Homers Holesome Donuts has determined that its profit-maximizing quantity is
10,000 donuts per year. Homers earns $12,000 in revenue from the sale of those
donuts. Homers has two costs. First he pays $16,000 in annual rental payments for
its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for
ingredients. Should Homers exit the industry in the long run?
A) Yes, because he is earning an economic loss.
B) Yes, because all costs are fixed in the long run.
C) No, because he is earning an economic profit.
D) No, because all costs are variable in the long run.

11) The figure above shows the demand, marginal revenue, and marginal cost curves
for Pauls Parrot pillows, a single-price monopoly producer of pillows stuffed with
parrot feathers. When Paul maximizes his profit, the price is ____ per pillow and
the quantity of pillows is ____ pillows.
A) $40; 3,000
B) $60; 4,000
C) $70; 3,000
D) $70; 4,000
E) None of the above answers are correct.
12) Corn is used to feed chickens. An increase in the price of corn ____ the equilibrium
price of chicken meat and ____ the equilibrium quantity of chicken meat.
A) raises; does not change
B) does not change; decreases
C) raises; increases
D) lowers; increases
E) raises; decreases
13) When duopoly games are repeated and a tit for tat strategy is used,
A) the competitive outcome is more likely to be reached than when the game is played once.
B) the monopoly outcome is more likely to be reached than when the game is played once.
C) both firms begin to incur economic losses.
D) one firm goes out of business.
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14) In part, the Coase theorem is a proposition about
A) assigning property rights.
B) measuring private costs.
C) subsidizing external benefits.
D) using vouchers.
E) taxing external costs.
15) When the price falls from $10.00 to $8.50, the quantity demanded increases from
700 units to 725 units. The price elasticity of demand equals
A) 0.22.
B) 4.62.
C) 6.16.
D) 1.67.
E) None of the above answers is correct.
16) The number of firms producing solar water heaters increases. As a result, the
equilibrium price of a solar water heater ____ and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; decreases
D) falls; increases
E) does not change; increases
17) Janes Garage Cleaning is a monopoly that currently cleans 40 garages a week.
Janes marginal cost is $35, her price is $40, and her average total cost is $40. Jane is
A) maximizing her profit and is making an economic profit.
B) not maximizing her profit and is making an economic profit anyway.
C) maximizing her profit and is making a normal profit.
D) not maximizing her profit and is making a normal profit.
E) More information is needed to determine whether she is maximizing her profit but she is
making a normal profit.
18) Generally an increase in workers human capital ____ the wage rate and ____
employment.
A) raises; increases
B) raises; decreases
C) lowers; increases
D) lowers; decreases
19) The average cost curve of a natural monopoly
A) is positively sloped until it crosses the demand curve.
B) intersects the demand curve while it is negatively sloped.
C) intersects the demand curve while it is positively sloped.
D) is the natural monopolys supply curve.
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20) Since about 1979, the income distribution 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 in 1980 is no longer comparable to that now.
21) New cars are a normal good and peoples incomes decrease. As a result, the
equilibrium price of a new car ____ and the quantity ____.
A) rises; increases
B) rises; decreases
C) falls; decreases
D) falls; increases
E) does not change; increases
22) An oligopolistic 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.
23) An uncrowded turnpike is
A) rival and excludable
B) nonrival and excludable
C) rival and nonexcludable
D) nonrival and nonexcludable
24) For a good with an external benefit, the marginal private benefit curve slopes ____
and ____ the marginal social benefit curve.
A) upward; lies above
B) upward; is the same as
C) downward; is the same as
D) downward; lies below
E) downward; lies above
25) According to the capture theory of regulation, the political process supplies the
regulation that
A) achieves an efficient allocation of resources.
B) maximizes consumer surplus.
C) maximizes total surplus.
D) maximizes the well-being of the regulators.
E) increases the benefits of producers.
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Sears
Set low
prices
Set high
prices


Set low
prices
S: $15 million
W: $6 million
S: $16 million
W: $10 million
Walmart Set
high
prices
S: $8 million
W: $9 million
S: $12 million
W: $9 million
26) 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.
27) The price of jet fuel rises. The equilibrium price of airline travel ____ and the
equilibrium quantity of airline trips _____.
A) rises; increases
B) rises; decreases
C) falls; decreases
D) falls; decreases
28) A single-price monopolist produces a ____ quantity than a perfectly competitive
market with the same costs and charges a ____ price than the perfectly competitive
market.
A) greater; higher
B) greater; lower
C) lesser; lower
D) lesser; higher
29) In an unregulated market, the equilibrium quantity of a common resource is ____
the efficient quantity.
A) greater than
B) equal to
C) less than
D) not comparable to
30) The price elasticity of demand for Mountain Dew, a soft drink, is most likely ____
the price elasticity of demand for soft drinks in general.
A) smaller than
B) equal to
C) greater than
D) None of the above because it is not possible to compare the price elasticity of Mountain
Dew with that of soft drinks because Mountain Dew is, itself, a soft drink.

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Sears
Set low
prices
Set high
prices


Set low
prices
S: $5 million
W: $15 million
S: $6 million
W: $30 million
Walmart Set
high
prices
S: $10 million
W: $14 million
S: $9 million
W: $9 million
31) 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.

32) The figure above shows the market for pizza in Gainesville. Suppose that college
students eat more pizza than other people. Which diagram shows the market for
pizza in summer when many college students leave Gainesville?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
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33) 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 stupid that
A) they had to burn the school down to get him out of the third grade.
B) he took a spoon to the superbowl.
C) he thinks a quarterback is a refund.