ECON 520 Final MC
A consumer has $100 per day to spend on two products, food and gas. Food has a unit price of $8 and gas has a price of $4. What is the slope of their budget line if food is on the horizontal axis and gas is on the vertical axis? a. -2 b. -0.5 c. 2 d. 0.5
A
An Engel curve: a. slopes upward for normal goods b. slopes upward for inferior goods c. slopes upward for both normal and inferior goods d. slopes downward for both normal and inferior goods
A
Assume that pizza is a normal good. If the price of pizza falls, then the substitution effect results in the person buying ________ pizza and the income effect results in the person buying ________ pizza. a. more; more b. more; less c. less; more d. less; less
A
Due to externalities generated by home landscaping, its price: a. is above the optimal level, and quantity bought is below the optimal level b. is below the optimal level, and quantity bought is above the optimal level c. and quantity bought are both above the optimal level d. and quantity bought are both below the optimal level
A
If an increase in the price of one good leads to an increase in the quantity demanded of another, the two goods are: a. substitutes b. complements c. independent d. unrelated
A
Smith just bought a house for $250,000. Earthquake insurance would pay $250,000 in the event of a major earthquake. Smith estimates that the probability of a major earthquake in the coming year is 5 percent, and that in the event of such a quake, the property would be worth nothing. If an earthquake insurance company were to charge actuarily fair premia, how much would the insurance cost? a. $12,500 b. $25,000 c. $2,500 d. none of the above
A
The federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price. This causes consumer surplus: a. to decrease b. to increase, but this increase is more than offset by the cost to producers and the government c. to increase and this increase is not offset by the cost to producers and the government d. and producer surplus to both increase
A
The theory of consumer behavior assumes that consumers can compare and rank all possible market baskets. This assumption is called: a. completeness b. transitivity c. Non-satiation (more is preferred to less) d. rationality
A
When demand is inelastic, an increase in price leads to: a. an increase in total expenditures b. a decrease in total expenditures c. no change in total expenditures d. an undetermined change in expenditures
A
A consumer has $100 per day to spend on product A, which has a unit price of $7, and product B, which has a unit price of $14. What is the slope of the budget line if good A is on the horizontal axis and good B is on the vertical axis? a. 1/2 b. -1/2 c. -7/100 d. -2
B
A situation in which the unregulated competitive market outcome is inefficient because prices fail to provide proper signals to buyers and sellers is known as: a. an imperfectly competitive market b. a market failure c. a deadweight loss d. a disequilibrium
B
After the price of one good drops, consumers will tend to buy more of the good that has become cheaper and less of those goods that are now relatively more expensive. This fact is called: a. the income effect b. the substitution effect c. the wealth effect d. the price effect
B
Assume that cheese is a normal good. If the price of cheese rises, then the substitution effect results in the person buying ________ cheese and the income effect results in the person buying ________ cheese. a. more; more b. less; less c. more; less d. less; more
B
Assume that powdered cheese is an inferior good. If the price of powdered cheese falls, then the substitution effect results in the person buying ________ powdered cheese and the income effect results in the person buying ________ powdered cheese. a. more; more b. more; less c. less; more d. less; less
B
For an inferior good, the income and substitution effects: a. work together b. work against each other c. can work together or in opposition to each other depending upon their relative magnitudes d. always exactly cancel each other
B
If a consumer prefers basket A to basket B and basket B to basket C, then the consumer also prefers A to C. This assumption is called: a. completeness b. transitivity c. non-satiation d. rationality
B
If a decrease in the price of one good leads to an increase in the quantity demanded of another, the two goods are: a. substitutes b. complements c. independent d. unrelated
B
Marginal utility measures: a. the slope of the indifference curve b. the additional satisfaction from consuming one more unit of a good c. the slope of the budget line d. the marginal rate of substitution
B
Monica consumes only goods A and B. Suppose that her marginal utility from consuming good A is equal to 1/𝑄a, and her marginal utility from consuming good B is 1/𝑄b. If the price of A is $4, the price of B is $2, and the Monica's income is $200, how much of good A will she purchase? a. 12.5 b. 25 c. 50 d. 100
B
The slope of an indifference curve reveals: a. that preferences are complete b. the marginal rate of substitution of one good for another good c. the ratio of market prices d. that preferences are transitive
B
Use the following two statements to answer this question: (I) when there is a shortage of quantity supplied, we can expect both the price and the quantity sold to decrease as the market moves towards its equilibrium; (II) when there is a surplus of quantity supplied, we can expect both the price and the quantity sold to decrease as the market moves towards its equilibrium. a. Both I and II are true b. Both I and II are false c. I is true and II is false d. I is false and II is true
B
When demand is elastic, an increase in price leads to: a. an increase in total expenditures b. a decrease in total expenditures c. no change in total expenditures d. an undetermined change in expenditures
B
A Giffen good a. is always the same as an inferior good b. is the special subset of inferior goods in which the substitution effect dominates the income effect c. is the special subset of inferior goods in which the income effect dominates the substitution effect d. must have a downward sloping demand curve
C
A curve that represents all combinations of market baskets that provide the same level of utility to a consumer is called: a. a budget line b. an isoquant c. an indifference curve d. a demand curve
C
An Engel curve measures: a. the relationship between quantity demanded and price b. the relationship between income and price c. the relationship between quantity demanded and income d. the relationship between normal and inferior goods
C
An individual consumes only two goods, X and Y. Which of the following expressions is true only when the individual has chosen her utility-maximizing bundle of X and Y? a. MRS is at its maximum b. MRS is at its minimum c. MRS = Px/Py d. MRS = total income
C
Assume that Hot Pockets are an inferior good. If the price of Hot Pockets rises, then the substitution effect results in the person buying ________ Hot Pockets and the income effect results in the person buying ________ Hot Pockets. a. more; more b. more; less c. less; more d. less; less
C
Blanca would prefer a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000 to a certain income of $20,000. Based on this information: a. we can infer that Blanca neutral b. we can infer that Blanca is risk averse c. we can infer that Blanca is risk loving d. we cannot infer Blanca's risk preferences
C
Consumer surplus measures: a. the extra amount that a consumer must pay to obtain a marginal unit of a good or service b. the excess demand that consumers have when a price ceiling holds prices below their equilibrium c. the benefit that consumers receive from a good or service beyond what they pay d. gain or loss to consumers from price fixing
C
Dry cleaning of clothing produces air pollutants. Therefore, in the market for dry cleaning services, the equilibrium price: a. and output are too low to be optimal b. and output are too high to be optimal c. is too low to be optimal, and equilibrium quantity is too high d. is too high to be optimal, and equilibrium quantity is too low
C
General Motors estimates that U.S. demand for its newest product will be: 𝑄us = 30,000 - 0.5P. Export demand will be: 𝑄ex = 25,000 - 0.5P. The total market demand curve for this product will be a: a. straight line with a slope of -1.0 b. straight line with a slope of -0.5 c. kinked line with the kink at P = 50,000 d. kinked line with the kink at Q = 25,000
C
If indifference curves cross, then: a. the assumption of a diminishing marginal rate of substitution is violated b. the assumption of completeness is violated c. the assumption of transitivity is violated d. consumers minimize their satisfaction
C
Judy gets 10 units of utility from a basket of goods containing 5 books and 3 candles. It follows that a basket containing 6 books and 3 candles gives Judy more than 10 units of utility. This assumption is called: a. completeness b. transitivity c. non-satiation d. rationality
C
Suppose the price of crude oil increases by 2%. In response to this price change, we observe that demand for crude oil drops by 3%. Is the demand for crude oil: a. perfectly elastic b. perfectly inelastic c. somewhat elastic d. somewhat inelastic
C
Use the following two statements to answer this question: (I) in a perfectly competitive market, the price is determined at the intersection of the demand and supply curves; (II) in a perfectly competitive market equilibrium there could be an excess quantity supplied. a. Both I and II are true b. Both I and II are false c. I is true and II is false d. I is false and II is true
C
Which of the following statements about isoquants is NOT true? a. isoquants are downward sloping b. an isoquant represents all pairs of capital and labor that produce a fixed level of output c. isoquants can intersect one another d. the slope of an isoquant represents the marginal rate of technical substitution
C
An effective price floor causes a loss of: a. producer surplus for certain and possibly consumer surplus as well b. consumer surplus only c. producer surplus only d. consumer surplus for certain and possibly producer surplus as well
D
Consumer surplus measures: a. the difference between the total amount that consumers are willing to pay and total actual consumer expenditures b. how well-off consumers are in a market equilibrium c. the area that is underneath the market demand curve and above the market price d. all of the above
D
Import tariffs generally result in: a. higher domestic prices b. less consumer surplus c. government revenue d. all of the above
D
Producer surplus measures: a. Total profits for all firms in a market b. Total profits minus marginal costs for all firms in a market c. Total revenue minus fixed costs for all firms in a market d. Total revenue minus variable costs for all firms in a market
D
Suppose the price of crude oil increases by 2%. In response to this price change, we observe that demand for crude oil drops by 1%. The demand for crude oil is: a. perfectly elastic b. perfectly inelastic c. somewhat elastic d. somewhat inelastic
D
The endpoints (horizontal and vertical intercepts) of the budget line: a. measure its slope b. measure the rate at which one good can be substituted for another c. measure the rate at which a consumer is willing to trade one good for another d. represent the quantity of each good that could be purchased if all of the budget were allocated to that good
D
The perfectly competitive firm's marginal revenue curve is: a. exactly the same as the marginal cost curve b. increasing c. decreasing d. exactly equal to the market price
D
The problem of scarcity means that people face trade-offs. Which of the following trade-offs are the concern of microeconomics? a. Trade-offs faced by consumers in the purchase of goods b. Trade-offs faced by workers between work and leisure c. Trade-offs faced by firms in what goods to produce d. All of the above
D
The short run is: a. less than a year b. three years c. however long it takes to produce the planned output d. a time period in which at least one input is fixed
D
Which of following is a key assumption of a perfectly competitive market? a. Firms can influence market price b. Commodities have few sellers c. It is difficult for new sellers to enter the market d. Each seller has a very small share of the market
D
Which of the following is NOT a property of standard indifference curves in a leisure-consumption model? a. indifference curves are downward sloping b. higher indifference curves indicate higher levels of utility c. indifference curves are convex to the origin d. indifference curves can intersect one another
D
Which of the following statements about an individual's indifference curves is incorrect: a. they are downward sloping b. they cannot intersect one another c. they are convex to the origin d. higher indifference curves represent lower levels of utility
D
________ questions have to do with explanation and prediction; ________ questions have to do with what ought to be. a. Positive; negative b. Negative; normative c. Affirmative; positive d. Positive; normative
D
What happens to X,Y when Px increases? (substitution effect)
Substitution effect: X decreases, Y increases
In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive, but can be resold, and are therefore an example of: a. a fixed cost b. a variable cost c. an opportunity cost d. a sunk cost
a. a fixed cost
In a production process, all inputs are increased by 10% but output increases by less than 10%. This means that the firm experiences: a. decreasing returns to scale b. constant returns to scale c. increasing returns to scale d. negative returns to scale
a. decreasing returns to scale
An investment opportunity is a sure thing; it will pay off $100 regardless of which of the three possible outcomes comes to pass. The variance of this investment opportunity: a. is 0 b. is 1 c. is -1 d. cannot be determined without knowing the probabilities of each of the outcomes
a. is 0
Fixed costs are fixed with respect to changes in: a. output b. capital expenditure c. wages d. time
a. output
Revenue is equal to: a. price times quantity b. price times quantity minus total cost c. price times quantity minus average cost d. price times quantity minus marginal cost
a. price times quantity
Which of the following statements is false? a. the average product of labor is the marginal product of labor divided by the number of workers b. the marginal product of labor is the change in output from hiring one additional worker, holding capital fixed c. the average product of labor is total production divided by the number of workers, holding capital fixed d. the value of the marginal product of labor is the output price times the marginal product of labor
a. the average product of labor is the marginal product of labor divided by the number of workers
Suppose your utility function for income that takes the form U(I) =√𝐼 , and you are considering a self- employment opportunity that may pay $10,000 per year or $40,000 per year with equal probabilities. What certain income would provide the same satisfaction as the expected utility from the self-employed position? a. $15,000 b. $22,500 c. $25,000 d. $27,500
b. $22,500
Which of the following is NOT a generally accepted measure of the riskiness of an investment? a. Standard deviation b. Expected value c. Variance d. none of the above
b. Expected value
A firm increases its total spending by 10% and output increases by more than 10%. This means that the firm experiences: a. increasing returns to scale b. economies of scale c. decreasing returns to scale d. diseconomies of scale
b. economies of scale
Which of the following is can be used as a measure of the riskiness of an investment? a. expected value b. standard deviation c. risk premium d. none of the above
b. standard deviation
We may not be able to successfully reduce risk by diversification if: a. a completely risk-free asset does not exist b. the asset returns in our portfolio are positively correlated c. buying stock on margin is not allowed by financial regulators d. all of the above
b. the asset returns in our portfolio are positively correlated
A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should: a. use five fewer units of capital b. use 0.8 fewer units of capital c. use 1.25 fewer units of capital d. add 1.25 units of capital
b. use 0.8 fewer units of capital
Blanca would prefer a certain income of $20,000 to a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000. Based on this information: a. we can infer that Blanca neutral b. we can infer that Blanca is risk averse c. we can infer that Blanca is risk loving d. we cannot infer Blanca's risk preferences
b. we can infer that Blanca is risk averse
Assume that a firm spends $500 on two inputs, labor (graphed on the horizontal axis) and capital (graphed on the vertical axis). If the wage rate is $20 per hour and the price of capital is $25 per hour, the slope of the isocost curve will be: a. 500 b. 25/500 c. -4/5 d. 25/20
c. -4/5
We typically think of labor as a variable cost, even in the very short run. However, some labor costs may be fixed. Which of the following items represents an example of a fixed labor cost? a. An hourly employee b. A temporary worker who is paid by the hour c. A salaried manager who has a three-year employment contract d. none of the above
c. A salaried manager who has a three-year employment contract
Consider a firm with the following production function: 𝑞 = 4 ∗ √𝐾 ∗ 𝐿 . Does this firm have: a. increasing returns to scale b. decreasing returns to scale c. constant returns to scale d. it is impossible to tell/more information is needed
c. constant returns to scale
The weighted average of all possible outcomes of a project, with the probabilities of the outcomes used as weights, is known as the: a. variance b. standard deviation c. expected value d. coefficient of variation
c. expected value
An isocost line reveals the a. costs of inputs needed to produce along an isoquant b. costs of inputs needed to produce along an expansion path c. input combinations that can be purchased for a given total cost d. output combinations that can be produced with a given outlay of funds
c. input combinations that can be purchased for a given total cost
Blanca would prefer a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000 to a certain income of $20,000. Based on this information: a. we can infer that Blanca neutral b. we can infer that Blanca is risk averse c. we can infer that Blanca is risk loving d. we cannot infer Blanca's risk preferences
c. we can infer that Blanca is risk loving
An L-shaped isoquant: a. is impossible b. would indicate that the firm could switch from one output to another costlessly c. would indicate that capital and labor are perfect complements in production d. would indicate that capital and labor are perfect substitutes in production
c. would indicate that capital and labor are perfect complements in production
Which of the following production functions exhibits constant returns to scale? a. 𝑞 = 𝐾 ∗ 𝐸 b. 𝑞 = 𝐾 ∗ √𝐸 c. 𝑞 = 𝐾 + 𝐸 d. 𝑞 = 𝑙𝑜𝑔(𝐾 ∗ 𝐸)
c. 𝑞 = 𝐾 + 𝐸
The short run is: a. less than a year b. three years c. however long it takes to produce the planned output d. a time period in which at least one input is fixed
d. a time period in which at least one input is fixed
Aline and Sarah decide to go into business together as economic consultants. Aline believes they have a 50% chance of earning $200,000 a year, and that if they don't, they'll earn $0. Sarah believes they have a 75% chance of earning $100,000 and a 25% chance of earning $10,000. The expected value of the undertaking, a. according to Sarah, is $75,000 b. according to Sarah, is $100,000 c. according to Aline, is $200,000 d. according to Aline, is $100,000
d. according to Aline, is $100,000
Which of the following statements about isoquants is true? a. isoquants are downward sloping b. an isoquant represents all pairs of capital and labor that produce a fixed level of output c. the slope of an isoquant represents the marginal rate of technical substitution d. all of the above are true
d. all of the above are true
A firm maximizes profit by operating at the level of output where: a. average revenue equals average cost b. average revenue equals average variable cost c. total costs are minimized d. marginal revenue equals marginal cost
d. marginal revenue equals marginal cost
The marginal product of an input is: a. total product divided by the amount of the input used to produce this amount of output b. the addition to total output that adds nothing to total revenue c. the addition to total output due to the addition of one unit of all other inputs d. the addition to total output due to the addition of the last unit of an input, holding all other inputs constant
d. the addition to total output due to the addition of the last unit of an input, holding all other inputs constant
The short run is defined as a period in which: a. the firm cannot change its output level b. the firm cannot change its input levels c. all input prices are fixed d. the amount of physical capital is fixed
d. the amount of physical capital is fixed
According to the law of diminishing returns: a. the total product of an input will eventually be negative b. the total product of an input will eventually decline c. the marginal product of an input will eventually be negative d. the marginal product of an input will eventually decline
d. the marginal product of an input will eventually decline
At what point should a firm stop hiring workers in the short run? a. when the wage per worker starts to increase b. when the price of capital starts to decrease c. when the firm's marginal gain from hiring an additional worker is zero d. when the firm's marginal profit from hiring an additional worker equals the cost of hiring that worker
d. when the firm's marginal profit from hiring an additional worker equals the cost of hiring that worker
