ECON 002 FINAL REVIEW
On the basis of the above information and assuming trade occurs between the three states, we can expect: A. Washington to exchange apples with Texas and receive money in return. B. Washington to exchange apples with Michigan and receive money in return. C. Texas to exchange lettuce with Michigan and receive autos in return. D. Texas to trade lettuce directly for Washington apples.
A
Prices are likely to be least flexible: A. in oligopoly. B. in monopolistic competition. C. where product demand is inelastic. D. in pure competition.
A
Refer to the diagram above. A decrease in demand is depicted by a: A. move from point x to point y. B. shift from D1 to D2. C. shift from D2 to D1. D. move from point y to point x.
A
The MR = MC rule applies: A. to firms in all types of industries. B. only when the firm is a "price taker." C. only to monopolies. D. only to purely competitive firms.
A
The price elasticity of demand of a straight-line demand curve is: A. elastic in high-price ranges and inelastic in low-price ranges. B. elastic but does not change at various points on the curve. C. inelastic but does not change at various points on the curve. D. 1 at all points on the curve.
A
When economists say that people act rationally in their self-interest, they mean that individuals: A. look for and pursue opportunities to increase their utility. B. generally disregard the interests of others. C. are mainly creatures of habit. D. are usually impulsive and unpredictable.
A
Which of the following is a fundamental characteristic of the market system? A. Property rights. B. Central planning by government. C. Unselfish behavior. D. Government-set wages and prices.
A
Which of the following is most likely to be an implicit cost for Company X? A. Forgone rent from the building owned and used by Company X. B. Rental payments on IBM equipment. C. Payments for raw materials purchased from Company Y. D. Transportation costs paid to a nearby trucking firm.
A
The elasticity of demand for a product is likely to be greater: A. if the product is a necessity, rather than a luxury good. B. the greater the amount of time over which buyers adjust to a price change. C. the smaller the proportion of one's income spent on the product. D. the smaller the number of substitute products available.
B
The income and substitution effects account for: A. the upward-sloping supply curve. B. the downward-sloping demand curve. C. movements along a given supply curve. D. shifts in the demand curve.
B
The law of diminishing marginal utility states that: A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B. beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer. C. price must be lowered to induce firms to supply more of a product. D. it will take larger and larger amounts of resources beyond some point to produce successive units of a product.
B
The primary force encouraging the entry of new firms into a purely competitive industry is: A. normal profits earned by firms already in the industry. B. economic profits earned by firms already in the industry. C. government subsidies for start-up firms. D. a desire to provide goods for the betterment of society.
B
Under pure competition in the long run: A. neither allocative efficiency nor productive efficiency is achieved. B. both allocative efficiency and productive efficiency are achieved. C. productive efficiency is achieved, but allocative efficiency is not. D. allocative efficiency is achieved, but productive efficiency is not.
B
We would expect: A. the demand for Coca-Cola to be less price elastic than the demand for soft drinks in general. B. the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general. C. no relationship between the price elasticity of demand for Coca-Cola and the price elasticity of demand for soft drinks in general. D. none of these to hold true.
B
What two conditions must hold for a competitive market to produce efficient outcomes? A. Demand curves must reflect all costs of production, and supply curves must reflect consumers' full willingness to pay. B. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay. C. Firms must minimize production costs, and consumers must minimize total expenditures. D. Firms must maximize profits, and consumers must all pay prices equal to their maximum willingness to pay.
B
Which of the following is correct as it relates to cost curves? A. Average variable cost intersects marginal cost at the latter's minimum point. B. Marginal cost intersects average total cost at the latter's minimum point. C. Average fixed cost intersects marginal cost at the latter's minimum point. D. Marginal cost intersects average fixed cost at the latter's minimum point.
B
32. Opportunity costs exist because: A. the decision to engage in one activity means forgoing some other activity. B. wants are scarce relative to resources. C. households and businesses make rational decisions. D. most decisions do not involve sacrifices or trade-offs.
A
A purely competitive seller is: A. both a "price maker" and a "price taker." B. neither a "price maker" nor a "price taker." C. a "price taker." D. a "price maker."
A
In which of the following industry structures is the entry of new firms the most difficult? A. Pure monopoly. B. Oligopoly. C. Monopolistic competition. D. Pure competition.
A
Macroeconomics approaches the study of economics from the viewpoint of: A. the entire economy. B. governmental units. C. the operation of specific product and resource markets. D. individual firm
A
Oligopolistic industries are characterized by: A. a few dominant firms and substantial entry barriers. B. a few dominant firms and no barriers to entry. C. a large number of firms and low entry barriers. D. a few dominant firms and low entry barriers.
A
A nondiscriminating profit-maximizing monopolist: A. will never produce in the output range where marginal revenue is positive. B. will never produce in the output range where demand is inelastic. C. will never produce in the output range where demand is elastic. D. may produce where demand is either elastic or inelastic, depending on the level of production costs.
B
A perfectly elastic demand curve implies that the firm: A. must lower price to sell more output. B. can sell as much output as it chooses at the existing price. C. realizes an increase in total revenue that is less than product price when it sells an extra unit. D. is selling a differentiated (heterogeneous) product.
B
A purely monopolistic firm: A. has no entry barriers. B. faces a downsloping demand curve. C. produces a product or service for which there are many close substitutes. D. earns only a normal profit in the long run.
B
A recent study found that an increase in the federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that: A. beer and marijuana are substitute goods. B. beer and marijuana are complementary goods. C. beer is an inferior good. D. marijuana is an inferior good.
B
Allocative efficiency is achieved when the production of a good occurs where: A. P = minimum ATC. B. P = MC. C. P = minimum AVC. D. total revenue is equal to TFC.
B
If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue: A. may be either greater or less than $5. B. will also be $5. C. will be less than $5. D. will be greater than $5.
B
If the demand for product X is inelastic, a 4 percent increase in the price of X will: A. decrease the quantity of X demanded by more than 4 percent. B. decrease the quantity of X demanded by less than 4 percent. C. increase the quantity of X demanded by more than 4 percent. D. increase the quantity of X demanded by less than 4 percent.
B
If you sum the squares of the market shares of each firm in an industry (as measured by percent of industry sales), you are calculating the: A. four-firm concentration ratio. B. Herfindahl index. C. degree of collusion. D. Lerner index.
B
In the short run, the individual competitive firm's supply curve is that segment of the: A. average variable cost curve lying below the marginal cost curve. B. marginal cost curve lying above the average variable cost curve. C. marginal revenue curve lying below the demand curve. D. marginal cost curve lying between the average total cost and average variable cost curves.
B
In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies? A. Pure monopoly. B. Oligopoly. C. Monopolistic competition. D. Pure competition.
B
Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that: A. the quantity of bananas purchased determines the price of bananas. B. all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant. C. economists can conduct controlled laboratory experiments. D. one cannot generalize about the relationship between the price of bananas and the quantity purchased.
B
A perfectly inelastic demand curve: A. has a price elasticity coefficient greater than unity. B. has a price elasticity coefficient of unity throughout. C. graphs as a line parallel to the vertical axis. D. graphs as a line parallel to the horizontal axis.
C
A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing: A. a loss that could be reduced by producing more output. B. a loss that could be reduced by producing less output. C. an economic profit that could be increased by producing more output. D. an economic profit that could be increased by producing less output.
C
Concentration ratios measure the: A. geographic location of the largest corporations in each industry. B. degree to which product price exceeds marginal cost in various industries. C. percentage of total industry sales accounted for by the largest firms in the industry. D. number of firms in an industry.
C
In the short run, a profit-maximizing monopolistically competitive firm sets it price: A. equal to marginal revenue. B. equal to marginal cost. C. above marginal cost. D. below marginal cost.
C
Monopolistic competition means: A. a market situation where competition is based entirely on product differentiation and advertising. B. a large number of firms producing a standardized or homogeneous product. C. many firms producing differentiated products. D. a few firms producing a standardized or homogeneous product.
C
Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that: A. the two commodities are substitute goods. B. Mrs. Arnold should spend more on pretzels and less on soda. C. Mrs. Arnold should spend more on soda and less on pretzels. D. Mrs. Arnold is buying soda and pretzels in the utility-maximizing amounts.
C
Nonprice competition refers to: A. competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts. B. price increases by a firm that are ignored by its rivals. C. advertising, product promotion, and changes in the real or perceived characteristics of a product. D. reductions in production costs that are not reflected in price reductions.
C
Normal profit is: A. determined by subtracting implicit costs from total revenue. B. determined by subtracting explicit costs from total revenue. C. the return to the entrepreneur when economic profits are zero. D. the average profitability of an industry over the preceding 10 years.
C
Pure monopolists may obtain economic profits in the long run because: A. of advertising. B. marginal revenue is constant as sales increase. C. of barriers to entry. D. of rising average fixed costs.
C
Refer to the data. If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing: A. 2 units of J and 7 units of K. B. 5 units of J and 5 units of K. C. 4 units of J and 5 units of K. D. 6 units of J and 3 units of K.
C
The MR = MC rule applies: A. in the short run but not in the long run. B. in the long run but not in the short run. C. in both the short run and the long run. D. only to a purely competitive firm.
C
55. In which of the following instances will total revenue decline? A. Price rises and supply is elastic. B. Price falls and demand is elastic. C. Price rises and demand is inelastic. D. Price rises and demand is elastic.
D
A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is: A. -$1,000. B. $9,000. C. $10,000. D. $1,000.
D
A purely competitive firm: A. must earn a normal profit in the short run. B. cannot earn economic profit in the long run. C. may realize either economic profit or losses in the long run. D. cannot earn economic profit in the short run.
D
An industry comprised of a very large number of sellers producing a standardized product is known as: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition.
D
Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation: A. should close down in the short run. B. is maximizing its profits. C. is realizing a loss of $60. D. is realizing an economic profit of $40.
D
Average fixed cost: A. equals marginal cost when average total cost is at its minimum. B. may be found for any output by adding average variable cost and average total cost. C. graphs as a U-shaped curve. D. declines continually as output increases.
D
In the long run, economic theory predicts that a monopolistically competitive firm will: A. earn an economic profit. B. realize all economies of scale. C. equate price and marginal cost. D. have excess production capacity.
D
Nonrivalry and nonexcludability are the main characteristics of: A. consumption goods. B. capital goods. C. private goods. D. public goods.
D
The concept of price elasticity of demand measures: A. the slope of the demand curve. B. the number of buyers in a market. C. the extent to which the demand curve shifts as the result of a price decline. D. the sensitivity of consumer purchases to price changes.
D
Which of the following is an example of market failure? A. Negative externalities. B. Positive externalities. C. Public goods. D. All of these.
D
Which of the following statements is correct? A. Average total cost is the difference between average variable cost and average fixed cost. B. Marginal cost measures the cost per unit of output associated with any level of production. C. When marginal product rises, marginal cost must also rise. D. Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.
D