ECON 202 Final Exam 2023 All Questions and Answers (CSU ) As a student representative, one of your roles is to organize a second -
hand textbook market between the current and former first -year students. After a survey, you estimate the demand and supply curves to be the ones shown in Figures 8.1 and 8.2. For example , you estimate that pricing the book at $7 would lead to a supply of 20 books and a demand of 26 books. Which of the following statements is correct? A. A rumour that the textbook may be required again in Year 2 would change the supply curve, shifting it upwards. B. Doubling the price to $14 would double the supply. C. A rumour that the textbook may no longer be on the reading list for the first -year students would change the demand curve, shifting it upwards. D. Demand would double if the price were reduc ed sufficiently. Correct Answer A. A rumour that the textbook may be required again in Year 2 would change the supply curve, shifting it upwards. (The rumour would make the former first -year students less willing to sell. Their WTAs would rise, shifting t he supply curve upwards. Equivalently, the number of students willing to supply their book at each price would be lower.) The diagram shows the demand and the supply curves for a textbook. The curves intersect at (Q, P) = (24, 8). Which of the following i s correct? Image 1: A. At price $10, there is an excess demand for the textbook. B. At $8, some of the sellers have an incentive to increase their selling price to $9. C. At $8, the market clears. D. 40 books will be sold in total. Correct Answer C. At $8 , the market clears. (At $8, the quantity demanded is equal to the quantity supplied —that is, the market clears.) Figure 8.5 shows a price -taking bakery's marginal and average cost curves, and its isoprofit curves. The market price for bread is P*= €2.35. Which of the following statements is correct? Image 2 A. The firm's supply curve is horizontal. B. At the market price of €2.35, the firm will supply 62 loaves, at the point where the firm makes zero profit. C. At any market price, the firm's supply is given by the corresponding point on the average cost curve. D. The marginal cost curve is the firm's supply curve. Correct Answer D. The marginal cost curve is the firm's supply curve. (At each price, the firm maximizes profit by choosing the corresponding quantity on the marginal cost curve. So the marginal cost curve is its supply curve.) There are two different ty pes of producers of a good in an industry where firms are price -takers. The marginal cost curves of the two types are given below: Image 3 Type A is more efficient than Type B: for example, as shown, at the output of 20 units, the Type A firms have a mar ginal cost of $2, as opposed to a marginal cost of $3 for the Type B firms. There are 10 Type A firms and 8 Type B firms in the market. Which of the following statements is correct? A. At price $2, the market supply is 450 units. B. The market will supply 510 units at price $3. C. At price $2, the market's marginal cost of supplying one extra unit of the good will depend on the type of the firm that produces it. D. With different types of firms, we cannot determine the marginal cost curve for the market. Correct Answer B. The market will supply 510 units at price $3. (At $3, type A firms supply 35 units and type B firms supply 20 units. So the market supply is (10 × 35) + (8 × 20) = 510.) In Figure 8.9a, the market equilibrium output and price of the brea d market is shown to be at (Q*, P*) = (5,000, €2). Suppose that the mayor decrees that bakeries must sell as much bread as consumers want, at a price of €1.50. Which of the following statements are correct? Image 4 A. The consumer and producer surpluses both increase. B. he producer surplus increases but the consumer surplus decreases. C. The consumer surplus increases but the producer surplus decreases. D. The total surplus is lower than at the market equilibrium. Correct Answer C. The consumer surplus increases but the producer surplus decreases. D. The total surplus is lower than at the market equilibrium. (The consumers benefit from the lower price, but producers lose because the price is below marginal cost. There is a deadweight loss, equal to the area of the triangle between the supply and demand curves to the right of equilibrium.) Which of the following statements about a competitive equilibrium allocation are correct? A. It is the best possible allocation. B. No buyer's or seller's surplus can be increased without reducing someone else's surplus. C. The allocation must be Pareto efficient. D. The total surplus from trade is maximized. Correct Answer B. No buyer's or seller's surplus can be increased without reducing someone else's surplus. D. The total surplus from trade is maximized. (This must be true, since the allocation maximizes the total surplus. This is a general property of competitive equilibrium.) There are five students who are looking to buy o ne second -hand textbook each. Their willingness -to-pay are £5, £6, £8, £12, and £15, respectively. Based on this information, which of the following statements is correct? A. The student with a willingness -to-pay of £15 is the richest. B. Their willingne ss-to-pay indicates an upward -sloping demand curve. C. To sell three books, the maximum price that can be charged is £8. D. If a seller is has a reservation price is £8, then he is guaranteed to sell his textbook. Correct Answer C. To sell three books, the maximum price that can be charged is £8. (If the price is £8, the demand is 3 books, and demand is less than 3 books for prices higher than £8.) Which of the following statements are correct? A. A market is in equilibrium if the actions of buyers and sellers have no tendency to change the price or the quantities bought and sold. B. The market -clearing price is the price at which all supplies are sold. C. Buyers are price -takers if they have bar gaining power. D. In a competitive equilibrium, neither buyers or sellers are price -
takers. Correct Answer A. A market is in equilibrium if the actions of buyers and sellers have no tendency to change the price or the quantities bought and sold.
