Questions 1-2 are based on the production possibilities curve depicted below.
1. Given the production possibilities curve above, which of the following represents a movement from efficiency to inefficiency?
(A) Point X to point W
(B) Point X to point Z
(C) Point Y to point Z
(D) Point W to point Z
(E) Point V to point Y
2. Based on a comparison of points X, Y, and Z,the opportunity cost of an additional consumer good is
(A) highest at point X
(B) highest at point Y
(C) highest at point Z
(D) lowest at point Y
(E) the same at points X, Y, and Z
3. The table above shows the quantity of gasoline supplied and demanded at various prices in a country. If the government sets a price floor of $2.75 on a gallon of gasoline, what is the price per gallon?
4. Last year 17 million tons of beans were sold for $300 per ton. This year 17 million tons of beans were sold for $285 per ton. Which of the following changes in demand and supply could have caused this outcome?
(A) Increase Increase
(B) Increase Decrease
(C) Decrease Increase
(D) Decrease Decrease
(E) Increase No change
5. Which of the following will most likely happen in the market for good X if the price of good X decreases?
(A) The supply of good X will decrease.
(B) The demand for good X will increase.
(C) The quantity demanded for good X will increase.
(D) The demand will decrease and the supply will increase.
(E) The quantity supplied for good X will increase.
6. Let MUs be the marginal utility of a sandwich,MUh be the marginal utility of a hot dog, Ps be the price of a sandwich, and Ph be the price of a hot dog. When the price of the goods is zero, Pat eats a sandwich. When Pat has to pay, she eats a hot dog. When Pat has to pay, which of the following is necessarily true?
A MUs = MUh = Ps = Ph
B MUs / Ps = MUh / Ph
C Ps < Ph
D Ps > Ph
E MUs = 0
1. Raphael’s hair salon is a monopoly in a small town and is currently earning an economic profit.
(a) Draw a correctly labeled graph for Raphael and include the curves that are necessary to identify the following.
(i) The profit-maximizing price and quantity of haircuts, labeled Pm and Qm
(ii) The area representing economic profits, shaded completely
(b) Does Raphael’s hair salon produce the allocatively efficient quantity? Explain.
(c) Assume that Raphael signs a new lease with an increase in rent, a fixed cost. Will the price of haircuts provided by Raphael increase, decrease, or stay the same in the short run? Explain.
(d) Assume that new hair salons enter the market and that the market becomes monopolistically competitive. Answer each of the following.
(i) The entry of new hair salons creates close substitutes for each individual salon’s services. As a result, will the demand for Raphael’s hair salon become more elastic or become less elastic, or will there be no change in the elasticity?
(ii) Will the entry cause the demand curve for Raphael’s haircuts to shift to the left, shift to the right, or stay the same?
(iii) In long-run equilibrium, will Raphael’s hair salon produce the productively efficient quantity? Explain.