Question Details

Economics 2
Proctored Final Examination
part A: Answer each of the following questions in one or two paragraphs' Each
answer is worth 1O Points'
1. Some people have suggested that forced population control is an efficient means
of reducing the Tragedy of the commons associated with our clean air and water
resources. provide an argument that would support this theory, and also an argument
that would oppose this theory' Then, provide another possible solution that
would relY on market mechanisms'
2. Describe a government-created monopoly. why might one be created? Give an
examPle.
3. Describe the difference between marginalcosf and average total cost' why are
both of these costs important to a profit-maximizing firm?
part B: Answer each of the following questions in one to four sentences' Each
answer is worth seven Points'
1. Tina hires leff to do odd jobs around her horne and agrees to pay him $5 per hour'
Tina further agrees to guarantee Jeff at least 40 hours of work per week' and to pay
himl,5timeshisbasepayforanyhoursworkedbeyond40,]f]effworks45hours
thisweek,arehiswagesafixedcostoravariablecosttoTina?Explain.
2. List the characteristics of a perfectly competitive market'
PE 10e s(0608)
Proctored Final Examination
(Continued on reverse side)
3. Imagine that you're on vacation in Russia, when suddenly you're arrested and accused
of spying for the United states. (You',re innocent, of course') Your captors inform
you that if you confess, you'll receive a prison sentence of two years/ while your
co-conspirator (whom you've never heard of) will receive a prison sentence of twenty
years. If you both confess, you'll each receive a prison sentence of five years' You're
also told that your co-conspirator is being offered the same option' if you both maintain
your innocence, howevel there's not enough evidence to convict either of you'
Applying economic theories to the problem, what should you choose to do, and why?
A hotel owner, having heard that new hotels plan to open in his area, says, "we have
too many hotels in this town already. Statistics show that vacancy rates average 20
percent on any given night." Assuming this is correct, evaluate his negative assessment
of the situation in terms of business-stealing and product-variety externalities'
Explain the theory that education acts as a signaling device' How does this contrast
to the theory of education as an investment in human capital?
Explain the difference betwee n inferior goods and normat goods' As a developing
economy experiences increases in income (measured by GDP), what do you predict
will happen to the demand for inferior goods?
7. Indicate whether each of the following is a private good, a common resourcet a
natural monopoly, or a public good {according to the definitions in your textbook)'
A. A fireworks disPlaY
B. A movie viewed at a large theater
C. A video rental
4.
5.
6.
B. The consumPtion of alcohol
Explain a situation in which
is often cited as an example of a negative externality'
alcohol would be considered a negative externality'
9. Describe the purpose of antitrust laws. what do they accomplish?
10. Describe why a consumer who chooses a consumption bundle in which the relative
price exceeds the marginal rate of substitution can't be at an optimum'
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