Intro to Microeconomics - Final

11) To ensure mutually beneficial trade, the terms of trade between two countries should always A) Be between their respective opportunity costs in production. B) Be set to favor the larger country because its output will be greater. C) Be set to favor the country with the least comparative advantage in a good to ensure the greatest gains from specialization. D) Allow each country to develop its area of absolute advantage.

A) Be between their respective opportunity costs in production.

12) A country will not trade unless A) The terms of trade are superior to domestic opportunities. B) It has an absolute advantage. C) Its balance of trade is in a surplus position. D) The production possibilities increase.

A) The terms of trade are superior to domestic opportunities.

1) Which of the following is a gain from trade? A) A higher price level for all trading countries. B) A level of self-sufficiency for all trading countries. C) A shorter workweek for all trading countries. D) A higher standard of living for all trading countries.

D) A higher standard of living for all trading countries.

2) A country has a comparative advantage in a good if A) It can specialize only in two goods. B) It can produce more of the good than another country. C) It always has an absolute advantage in the production of the good. D) It can produce a good at a lower opportunity cost relative to another country.

D) It can produce a good at a lower opportunity cost relative to another country.

7) Suppose the United States can produce 2,000 cars or 2,000 trucks. Japan can produce either 2,000 cars or 1,000 trucks. In terms of car production we can conclude that A) The United States has an absolute advantage. B) Japan has an absolute advantage. C) The United States has a comparative advantage. D) Japan has a comparative advantage.

D) Japan has a comparative advantage.

3) Two countries will have zero incentive to trade if their production possibilities curves are parallel straight lines because A) An intersection of the two lines is not possible, and therefore a trade equilibrium is not possible. B) One country has an absolute advantage in the production of both goods, thus providing that country with no incentive for trade. C) One country has a comparative advantage in the production of both goods, thus providing that country with no incentive for trade. D) The opportunity costs for both countries are the same.

D) The opportunity costs for both countries are the same.

14. An externality from crime is illustrated by the a) inability of a victim of assault to do work following the assault. b) Value of property destroyed in the course of a robbery. c) Anxiety or decrease in well being that people feel in going about their business in areas where crime rates are high. d) Diversion of resources from making butter to making guns.

c) Anxiety or decrease in well being that people feel in going about their business in areas where crime rates are high.

3. A country can a) import without exporting. b) Export without importing. c) Export only if it also imports goods. d) Increase its standard of living by exporting, but not importing.

c) Export only if it also imports goods.

28. The efficient level of crime prevention is attained when a) MSB>MSC. b) MSB <MSC. c) MSB = MSC. d) There is no crime. e) None of the above.

c) MSB = MSC.

7. A monopolist maximizes profits by producing the output where a) Marginal cost is equal to price. b) Average total costs are at a minimum. c) Marginal cost equals marginal revenue. d) Marginal revenue is equal to price.

c) Marginal cost equals marginal revenue.

21. The difference between a firm's total revenue and total cost is a) A deadweight welfare loss. b) Known as the market concentration ratio. c) Profit. d) Called marginal revenue.

c) Profit.

11. A higher than average return on investment a) Induces investors to leave the industry. b) Results in falling supplies and rising prices relative to costs in the industry. c) Provides an incentive for new investment and new firms to enter the industry. d) Can be sustained indefinitely in competitive industries.

c) Provides an incentive for new investment and new firms to enter the industry.

11. Voluntary associations to provide collectively consumed goods a) can effectively handle the free-rider problem. b) Can require all who benefit from a collectively consumed good to pay for it. c) Tend to fall apart because of the incentives that induce some people to become "free riders." d) do all of the above.

c) Tend to fall apart because of the incentives that induce some people to become "free riders."

2. As a criminal act, burning trash within the city limits a) would be classified as a crime against property. b) is also clearly immoral. c) is contrary to the general welfare of the society. d) is all of the above.

c) is contrary to the general welfare of the society.

27. If an individual benefits from the crime prevention activities of the local police, but does not help to pay for police services, the individual is a) consuming collectively. b) Consuming semi-collectively. c) Consuming individually. d) A "free-rider." e) none of the above.

d) A "free-rider."

24. If producing 10 costs $100 and producing 11 costs $109, then a) MC of the 11 unit is 10. b) AC of the 1 unit is 10. c) MC of the 10th unit is 10. d) AC of the 10th unit is 10. e) None of the above.

d) AC of the 10th unit is 10.

3. Criminal activities lead to which of the following types of costs for society? a) Economic b) Psychic c) Opportunity d) All of the above

d) All of the above

19. Which of the following is a barrier to entry imposed by the government? a) A chauffeur's license. b) A patent granted on a new invention. c) A construction zoning ordinance. d) All of the above.

d) All of the above.

26. Which of the following is NOT a category of criminal acts as discussed in the text? a) Violent crimes. b) Crimes against property. c) Traffic in illegal drugs. d) Crimes against society. e) None of the above. (They are all categories discussed in the text.)

d) Crimes against society.

5. If MC> MR, a competitive firm would maximize profits by a) Reducing price. b) Increasing price. c) Increasing price and decreasing output. d) Decreasing output. e) Increasing output.

d) Decreasing output.

8. Collectively consumed goods a) benefit directly only those individuals who consume them. b) Yield identifiable benefits to those that consume them. c) May be easier to produce than individually consumed goods because of the "free rider" problem. d) Do none of the above.

d) Do none of the above.

6. The annual economic costs of criminal activities are best measured by a) the value of goods stolen and destroyed by criminals. b) The cost of all law enforcement activities. c) What criminals could have earned in their best alternative employment. d) Foregone GDP that results from them.

d) Foregone GDP that results from them.

18. Compared to a competitive market, a monopolist will charge a a) Lower price and produce a larger output. b) Lower price and produce a smaller output. c) Higher price and produce a larger output. d) Higher price and produce a smaller output.

d) Higher price and produce a smaller output.

6. A competitive firm's supply curve a) Shows how much it will place on the market at alternative possible prices, other things being equal. b) Is its marginal revenue curve. c) It its marginal cost curve. d) Is both (a) and (c).

d) Is both (a) and (c).

24. Which of the following would most likely represent the market equilibrium price and quantity after the legalization of marijuana? a) Higher price, lower quantity. b) Higher price, higher quantity. c) Lower price, lower quantity. d) Lower price, higher quantity. e) Insufficient information to determine.

d) Lower price, higher quantity.

4. Business firms tend to set prices and output levels primarily to a) assure goodwill in the community. b) Block entry of new firms into the industry. c) Provide employment for people. d) Maximize profits.

d) Maximize profits.

12. The costs of crime prevention are a) estimates of how much better off the suppression of crime makes society. b) Essentially intangible. c) Much more difficult to estimate than the benefits. d) None of the above.

d) None of the above.

1. Protectionists assert that the importation and sale of foreign goods results in a) higher unemployment rates. b) Balance of trade and balance of payments problems. c) Weakened defense preparedness. d) all of the above.

d) all of the above.

4) Two countries with differing comparative advantages may engage in trade because A) They will be able to consume more goods in total due to specialization and trade. B) They will be able to produce and consume goods on their production possibilities curves. C) They will achieve an absolute advantage with one another. D) They are required to because they are part of the World Trade Organization.

A) They will be able to consume more goods in total due to specialization and trade.

6) Suppose the production of 12 tons of copper in the United States requires the same amount of resources as the production of 3 tons of aluminum. In Mexico, 12 tons of copper requires the same amount of resources as 2 tons of aluminum. Implicitly A) Mexico has an absolute advantage in producing copper. B) Mexico has a comparative advantage in producing copper. C) The United States has an absolute advantage in producing aluminum. D) Neither country has a comparative advantage in producing aluminum.

B) Mexico has a comparative advantage in producing copper.

5) A country with a comparative advantage in producing computer chips A) Has greater capacity to produce computer chips, given its resources, than do its trading partners. B) Can achieve better terms of trade in selling computer chips than its trading partners. C) Has a lower opportunity cost of producing computer chips than its trading partners. D) Can produce computer chips with fewer resources than its trading partners.

C) Has a lower opportunity cost of producing computer chips than its trading partners.

8) When one country can produce a given amount of a good using fewer inputs than any other country, A) Specialization will definitely increase worldwide consumption possibilities. B) Specialization will definitely increase worldwide production possibilities. C) It has an absolute advantage in producing the good. D) It always has a comparative advantage in producing the good.

C) It has an absolute advantage in producing the good.

10) The amount of good A given up for good B in trade is the A) Comparative advantage. B) Exploitation of consumers. C) Terms of trade. D) Absolute advantage.

C) Terms of trade.

9) Assume the United States and Australia have the same amount of resources. In a given time period, the United States can produce 2 tons of beef or 200,000 cars. Australia can produce 1 ton of beef or 100,000 cars. This means that A) Australia has an absolute advantage in both beef and cars. B) The United States has a comparative advantage in beef. C) The United States has an absolute advantage in both beef and cars. D) Australia has a comparative advantage in cars.

C) The United States has an absolute advantage in both beef and cars.

4. The U.S. must import in order to export because a) Foreigners must earn dollars to be able to buy U.S. exports. b) The U.S. has a comparative advantage in the products it imports and exports. c) Foreign goods can displace a large part of the domestic production and sale of goods. d) None of the above.

a) Foreigners must earn dollars to be able to buy U.S. exports.

16. A profit maximizing firm will increase its production when a) Marginal revenue is greater than marginal cost. b) Total revenue is greater than marginal cost. c) Marginal cost is greater than marginal revenue. d) Total cost is greater than total revenue. e) Marginal revenue is equal to marginal cost.

a) Marginal revenue is greater than marginal cost.

30. The existence of which of the following is an economic justification for regulation? a) Natural monopoly. b) Perfect information. c) Well-defined property rights. d) All of the above. e) None of the above.

a) Natural monopoly.

29. When the value of a product to a consumer is enhanced when others also consume the same product, which of the following exists? a) Network economies. b) Economies of scale. c) Natural monopoly. d) Deadweight loss. e) None of the above.

a) Network economies.

25. The capture theory of regulation says that firms may "capture" a) Regulators. b) Governments. c) Monopolies. d) Industries. e) Any of the above.

a) Regulators.

2. According to the free-trade viewpoint, specialization and voluntary exchange among nations a) confer the same benefits on the exchange parties as trade among individuals in any one country. b) Benefit importers at the expense of exporters. c) Inhibit domestic economic activity. d) Threaten out national defense. e) Do all of the above.

a) confer the same benefits on the exchange parties as trade among individuals in any one country.

22. If marijuana went from being illegal to being legal, the supply of marijuana would a) increase. b) Decrease. c) Be unaffected. d) Shift to the left. e) Insufficient information to determine.

a) increase.

23. If marijuana were legalized, the demand curve would a) increase. b) Decrease. c) Be unaffected. d) Shift to the left. e) Insufficient information to determine.

a) increase.

22. The deadweight welfare loss due to monopoly, for the economy as a whole, is estimated to be about a) l% of GDP. b) 10%ofGDP. c) 20% of GDP. d) 35%ofGDP.

a) l% of GDP.

19. Suppose that a dollar reduction in crime detection activity results in a $1.40 loss to the community as a result of an increase in criminal activity. The reduction in crime detection is a) inappropriate, since it results in a net loss of $1.40. b) Appropriate if the dollar, when spent for rehabilitation activities, makes the community better off by more than $1.40. c) Appropriate, since the marginal benefits of the last dollar spent on crime detection of $1.40 is equal to the loss due to the reduction. d) None of the above.

b) Appropriate if the dollar, when spent for rehabilitation activities, makes the community better off by more than $1.40.

7. Crime prevention activities a) are an individually consumed service. b) Are a collectively consumed service. c) Can be provided in the optimum amount by competitive private enterprises through the market-price system. d) Yield benefits primarily to the individuals who consume them.

b) Are a collectively consumed service

13. Non price competition a) Is a common practice in competitive industries. b) May increase a firm's monopoly power. c) is easier for other firms to duplicate than price cutting competition. d) May lead to substantial shifts in market shares when all firms in the industry have successful campaigns.

b) May increase a firm's monopoly power.

20. Which of the following do competitive firms and monopolies have in common? Both a) Will produce as much output as their technology will allow. b) Seek to maximize profit by producing a level of output such that marginal revenue equals marginal cost. c) Face barriers to entry, which significantly affects the price of their product. d) Produce a deadweight welfare loss for society due to profit maximizing behavior.

b) Seek to maximize profit by producing a level of output such that marginal revenue equals marginal cost.

3. Profit maximization a) Is a goal peculiar to firms with monopoly power. b) Tends to be a major objective of firms in all types of market structures. c) Is the only goal of business firms? d) Is none of the above.

b) Tends to be a major objective of firms in all types of market structures.

2. Monopoly power refers to a) The absolute size or bigness of a firm in terms of its assets or sales. b) The extent of a firm's control over the market supply of its product. c) The power of government to block entry into certain industries or occupations. d) all of the above.

b) The extent of a firm's control over the market supply of its product.

17. Deadweight welfare loss occurs a) In a competitive market. b) When firms have monopoly power. c) When firms decrease price. d) Only in resource markets.

b) When firms have monopoly power.

13. Assume one unit of crime prevention activity would yield benefits to the community of $300,000 and cost $120,000. The community a) would be better off not providing one unit of crime prevention. b) Would provide at least one unit of crime prevention since the net benefits are $180,000. c) Would provide two units of crime prevention if the total net benefits are less than $180,000. d) Could provide four units of crime prevention if the marginal cost of the fourth unit exceeds its marginal benefits.

b) Would provide at least one unit of crime prevention since the net benefits are $180,000.

1. Acts that are illegal or criminal are a) generally, but not always, moral acts. b) designated as such by legislative bodies. c) restricted to actions against property. d) all of the above.

b) designated as such by legislative bodies.

10. The government, in a predominantly private enterprise economic system, a) is responsible for the production of individually consumed, as well as collectively consumed and semi-collectively consumed, goods and services. b) Tends to leave the bulk of individually consumed goods and services to private business. c) plays a relatively important role in the provision of semi-collectively consumed and collectively consumed goods and services. d) does both (b) and (c).

d) does both (b) and (c).

12. To the extent that firms with monopoly power are able to restrict entry of new firms into an industry, a) Outputs tend to be lower. b) Prices tend to be higher. c) Profits tend to be greater than they would be if entry were not restricted. d) Resources tend to be misallocated. e) All of the above.

e) All of the above.

23. Which of the following is indicated when average cost declines as output increases? a) Natural monopoly. b) Economies of scale. c) Regulation may increase social welfare. d) There is a social benefit from monopoly production. e) All of the above.

e) All of the above.

29. In deciding whether to enter an illegal business (like growing marijuana), an individual considers a) psychic costs. b) Psychic income. c) Explicit costs. d) Money income. e) All of the above.

e) All of the above.

9. Which of the following is an example of a collectively consumed good or service? a) Crime prevention. b) National defense. c) Communicable disease control. d) Smog control. e) All of the above.

e) All of the above.

9. Every country has comparative advantages in the production of some goods and comparative disadvantages in the production of others, because countries have different a) Resource endowments. b) Technology levels. c) Currencies. d) all of the above. e) Both (a) and (b).

e) Both (a) and (b).

1. Often the general public believes that big business enterprises a) control the economy. b) Deliberately withhold output and charge unfair prices. c) Pay exploitative wages and salaries. d) Earn exorbitant profits. e) Do all of the above.

e) Do all of the above.

26. Big businesses necessarily result in a) Monopoly power. b) Higher prices. c) Lower levels of output. d) all of the above. e) None of the above.

e) None of the above.

25. Economic analysis of the legalization of marijuana tells us that legalizing marijuana a) will lead to an increase in crime. b) Is desired by society. c) Will restrict the amount of marijuana sold. d) Will raise the price of marijuana and, therefore, decreases quantity demanded. e) Will do none of the above.

e) Will do none of the above.

15. Entry barriers may be caused by a) Product differentiation. b) Brand loyalty. c) Occupational licensing. d) Government regulation. e) all of the above.

e) all of the above.

14. A business enterprise has monopoly power if a) It is big in terms of the value of its output and assets. b) It is big in terms of the value of its assets and it supplies a large percent of the product. c) It is small in terms of the value of its output, and it sells a large percentage of the units sold in the market. d) all of the above. e) both (b)and(c).

e) both (b)and(c).

4. Crime prevention activities a) lower GDP below what it would be without them. b) can be considered an economic good or service. c) use productive resources. d) do all of the above. e) do both (b) and (c).

e) do both (b) and (c).