ECO365 Final Exam 2015

Aug 6th, 2016
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Question 1. The law of diminishing marginal productivity implies that the marginal product of a variable input: Is constant Never declines Eventually declines Always declines 2. Suppose foreign shrimp prices drop by 32 percent and importers gain a 90 percent market share. From this information, what would economists strongly suspect about this industry? Foreign sellers probably are colluding on price to maximize profits. The large sales of foreigners indicate they are better strategic business bargainers than Americans are. Foreigners have a comparative advantage in shrimping. Americans have a comparative advantage in shrimping. 3. Suppose people freely choose to spend 40 percent of their income on health care, but then the government decides to tax 40 percent of that person’s income to provide the same level of coverage as before. What can be said about deadweight loss in each case? Taxing income results in deadweight loss, and purchasing health care on one’s own doesn’t r

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ECO365 Final Exam 2015Question1. The law of diminishing marginal productivity implies that the marginal product of a variableinput:Is constantNever declinesEventually declinesAlways declines2. Suppose foreign shrimp prices drop by 32 percent and importers gain a 90 percent marketshare. From this information, what would economists strongly suspect about this industry?Foreign sellers probably are colluding on price to maximize profits.The large sales of foreigners indicate they are better strategic business bargainers thanAmericans are.Foreigners have a comparative advantage in shrimping.Americans have a comparative advantage in shrimping.3. Suppose people freely choose to spend 40 percent of their income on health care, but then thegovernment decides to tax 40 percent of that persons income to provide the same level ofcoverage as before. What can be said about deadweight loss in each case?Taxing income results in deadweight loss, and purchasing health care on ones own doesntresult in deadweight loss.There is no difference because the total spending remains the same and the health care purchasedremains the same.Taxing income results in less deadweight loss because government knows better what health carecoverage is good for society.There is no difference between goods that are purchased in the market in either case.4. In 1997, the federal government reinstated a 10 percent excise tax on airline tickets. Theindustry tried to pass on the full 10

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