MICRO-ECON EXAM #1
As it applies to insurance, the adverse selection problem is the tendency for: a. those most likely to collect on insurance to buy it. b. those who buy insurance to take less precaution in avoiding the insured risk. c. sellers to price discriminate. d. sellers to restrict output and charge high prices.
A
By the law of demand, everything else unchanged, a fall in the price of legal marijuana due to drug legalization in Colorado should: a. Increase the quantity of legal marijuana demanded. b. Not affect the demand for legal marijuana. c. Decrease the quantity of legal marijuana.
A
In the above question, fixing the price of consumer goods below their market-clearing price is an example of a. price ceiling b. price floor c. overproduction
A
Market failure is said to occur whenever: a. private markets do not allocate resources in the way that best satisfies society's wants. b. price rise c. some consumers who want a good do not obtain it because the price is higher than they are willing to pay. d. government intervenes in the functioning of private markets.
A
Suppose Jon treats coffee and tea as perfect substitutes and a small rise in per unit price of tea leads him to stop drinking tea altogether and drink coffee only. In that case, economists would say that Jon's demand for tea a. is elastic b. is inelastic c. is insatiable
A
A decrease in the demand for SUV's can be caused by an increase in the: a. buyers incomes b. price of gasoline c. population size
B
A positive externality or spillover benefit occurs when: a. product differentiation increases the variety of products available to consumers. b. the benefits associated with a product exceed those accruing to people who consume it. c. a firm produces at the P = MC output d. economic profits are zero in the long run.
B
As it applies to insurance, the moral hazard problem is the tendency for: a. those most likely to collect on insurance to buy it. b. those who buy insurance to take less precaution in avoiding the insured risk. c. sellers to price discriminate d. sellers to restrict output and charge high prices.
B
Assume that the demand schedule for coke is downward sloping. If the price of coke falls from $2 to $1.75: a. a smaller quantity of coke will be demanded. b. a larger quantity of coke will be demanded. c. the demand for coke will decrease
B
By the law of supply, everything else unchanged, higher price for oil received by the producers should lead to: a. lower supply of oil in the U.S. b. greater supply of oil in the U.S. c. no effect on oil supply in the U.S.
B
If a good that generates positive externalities were produced and priced to take into account these spillover benefits, then its: a. price would increase and output would remain constant. b. output would increase c. output would decrease d. output would remain constant.
B
If demand for workers in the fast-food restaurants is (highly) elastic, then an increase in the hourly U..S. federal minimum wage (from 7.25 to 10.10) will a. increase the restaurants wage expenditure on their workers b. reduce the restaurants wage expenditure on their workers c. not affect the restaurants wage expenditure on their workers
B
If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will: a. decrease the amount demanded by more than 10 percent b. increase the amount demanded by more than 10 percent c. decrease the amount demanded by less than 10 percent
B
In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are: a. complementary goods b. substitute goods and the higher price for oil increased the demand for natural gas. c. unrelated goods. complementary goods and the higher price for oil reduced the demand for natural gas.
B
In a cap-and-trade program: a. government fixes the price of pollution rights and firms choose how many permits to purchase. b. government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other. c. each firm is provided a fixed number of permits for a particular pollutant and no individual firm is allowed to acquire additional permits. d. firms can emit whatever type of pollutant they want, so long as the total tonnage does not exceed government established quantity.
B
In the above question, if the rise in the hourly wage rate creates a surplus of workers in the labor market, then this higher minimum wage (above the free-market wage) is an example of a a. price ceiling b. price floor c. overproduction
B
In the market for skilled software developers, greater demand for software programmers by the computer firms is likely to: a. reduce the wages of software programmers b. increase the wages of software programmers c. cause market failure for the computer business
B
Suppose the price of local cable TV service increased from 16.20 to 19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, the (absolute) own price elasticity of demand is: a. 0.8 b. 1.2 c. 1.6
B
When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls, and fewer Adidas soccer balls. This suggests that Nike and Adidas soccer balls are a. unrelated goods b. substitutes c. complements
B
3. Other things equal, determine the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for or supply (S) of X; (2) the equilibrium price of X (P); and (3) the equilibrium quantity of X (Q). Refer to the given information. An increase in the price of a product that is a close substitute for X will: a. decrease D, increase P, and decrease Q. b. increase D, increase P, and decrease Q. c. increase D, increase P, and increase Q. d. increase D, decrease P, and increase Q.
C
Ability of producers to extract oil and natural gas from underground sources using new technology has a positive effect on supply. For a given level of demand (shown by the demand curve), this technology improvement should lead to a. lower output and lower price of oil and natural gas b. higher output and higher price of oil and natural gas c. higher output and lower price of oil and natural gas
C
An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that: a. there are many goods that are complementary to bicycles b. there are few goods that are substitutes for bicycles. c. bicycles are normal goods
C
An economist for a bicycle company predicts that, other things equal, a rise in the consumer incomes will increase the demand for bicycles. This prediction assumes that: a. there are many goods that are substitutes for bicycles b. there are many goods that are complementary to bicycles c. bicycles are normal goods. d. bicycles are inferior goods.
C
Assume that a 4 percent increase in income leads to an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is: a. negative and therefore X is an inferior good. b. negative and therefore X is a normal good. c. positive and therefore X is a normal good.
C
Gigantic State University raises tuition fees for the purpose of increasing its revenue. GSU is assuming that the demand for education at GSU is: a. decreasing b. elastic c. inelastic
C
Gigantic State University raises tuition fees for the purpose of increasing its revenue. GSU is assuming that the demand for education at GSU is: a. decreasing b. elastic c. inelastic d. unit elastic
C
If low-quality Robusta coffee and high-quality Arabica coffee are close substitutes, everything else unchanged, a rise in price of the high-quality Arabica coffee will a. increase demand for low-quality Robusta coffee b. reduce demand for high-quality Arabica coffee c. all of the above
C
If the University Chamber Music Society decides to reduce ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is: a. parallel to the horizontal axis b. shifting to the left c. elastic
C
If the minimum hourly wage paid to workers in the fast-food industry and similar businesses is raised from $7.25 to $10.10, then a. some of these workers might lose their jobs (by law of demand) b. there may be a surplus of workers willing to work at $10.10 over the number of workers that is demanded. c. all of the above
C
If the policy of drug legalization in Colorado leads to drop in marijuana prices and if the demand for marijuana in Colorado is inelastic, then it is likely to a. increase the amount of money that buyers spend on marijuana in Colorado b. reduce the demand for marijuana in Colorado c. reduce the amount of money that buyers spend on marijuana in Colorado
C
In a market economy, buyers and sellers are guided by a. media b. government regulations c. prices of goods
C
In the past few years the demand for donuts has increased. This increase in demand might best be explained by: a. an increase in the cost of making donuts b. better technology of making donuts c. a change in buyer tastes towards eating more donuts
C
Other things equal, determine the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for or supply (S) of X; (2) the equilibrium price of X (P); and (3) the equilibrium quantity of X (Q). Refer to the given information. A decrease in the number of consumers of product X will: a. decrease S, decrease P, and decrease Q. b. increase D, increase P, and increase Q. c. decrease D, decrease P, and decrease Q. d. decrease d, decrease P, and increase Q.
C
Suppose a consumer-welfare-minded government sets the price of essential consumer items (ex. bread, shoes, etc.) well below their free-market price. The effect of this will be a. surplus of consumer goods b. drop in demand for consumer goods c. shortage of consumer goods
C
The Coase theorem states that: a. government should levy excise taxes on firms that generate spillover or external costs. b. taxes should be levied such that they change private behavior as little as possible. c. bargaining between private parties will remedy externality problems where property rights are clearly defined, the number of people involved are few, and bargaining costs are small. d. trading of votes to secure favorable voting outcomes may increase efficency.
C
The concept of price elasticity of demand measures: a. the number of buyers in the market. b. the extent to which the demand curve shifts as the result of a price decline. c. the sensitivity of consumer purchases to price changes.
C
The demand curve shows the relationship between: a. money income and quantity demanded. b. price and production costs. c. price and quantity demanded.
C
The demand schedules for farm products like eggs, bread, and butter tend to be: a. perfectly price elastic b. of unit price elasticity c. price inelastic
C
The economist magazine believes that economic problems and falling incomes in the U.S. and Europe have led to drop in demand for high-quality Arabica coffee. This assertion suggests that: a. high-quality Arabica coffee is an inferior good. b. tea and coffee are substitutes c. high-quality Arabica coffee is a normal good.
C
The price of product X is reduced from $100 to $80 and, as a result, the quantity demanded increases from 40 to 60 units. Therefore demand for X in this price range: a. is inelastic b. is unit elastic c. is elastic
C
The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range: a. has declined b. is of unit elasticity c. is elastic
C
The tendency for society to overuse and therefore abuse common resources is called the: a. law of conservation of matter and energy b. moral hazard problem c. tragedy of the commons. d. the Coase theorm.
C
The two main characteristics of a public good are: a. production at constant marginal cost and rising demand. b. nonexcludability and production at rising marginal cost. c. nonrivalry and nonexcludability d. nonrivalry and large negative externalities.
C
We would expect the cross elasticity of demand between Pepsi and Coke to be : a. positive, indicating normal goods. b. positive, indicating inferior goods. c. positive, indicating substitute goods.
C
A negative externality or spillover cost occurs when: a. firms fail to achieve allocative effciency. b. firms fail to achieve productive effciency. c. price exceeds marginal cost. d. the total cost of producing a good exceeds the costs borne by the producer.
D
Other things equal, determine the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for or supply (S) of X; (2) the equilibrium price of X (P); and (3) the equilibrium quantity of X (Q). An increase in the prices of resources used to produce X will: a. increase S, increase P, and increase Q b. increase D, increase P, and increase Q c. decrease S, decrease P, and decrease Q d. decrease S, increase P, and decrease Q
D
The price of product X is reduced from $100 to $80 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range: a. has declined b. is of unit elasticity c. is elastic d. is inelastic
D
Which of the following is an example of market failure? a. information asymmetries b. externalities c. public goods d. all of these
D