# ECO365/ECO 365 Final Exam 2015 (90% score) - 93808

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## anjis_devis

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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 result in deadweight loss.

There is no difference because the total spending remains the same and the health care purchased remains the same.

Taxing income results in less deadweight loss because government knows better what health care coverage 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. The industry tried to pass on the full 10 percent ticket tax to consumers but was able to boost fares by only 4 percent. From this you can conclude that the:

Demand for airline tickets is perfectly inelastic.

Supply elasticity of airline tickets is less than infinity.

Demand elasticity for airline tickets is greater than zero in absolute value.

Supply of airline tickets is perfectly inelastic.

5. There are many restaurants in the city of Raleigh, each one offering food and services that differ from those of its competitors. There is also free entry of sellers into the market, and each seller serves a very small fraction of the total number of meals served each day. The restaurant industry in Raleigh is best characterized as:

Monopolistically competitive.

Perfectly competitive.<

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