micro economics final exam
the figure shows arnold's demand curve for burritos. arnold's marginal benefit from consuming the third burrito is
$1.50
the figure shows the market for apartments in springfield. recently, the government imposed a rent ceiling of $1,000 per month. what is the value of the deadweight loss after the imposition of the ceiling?
$100,000
if the output price is $3 what is the marginal revenue product of the fifth unit of labor?
$150
the figure shows arnold's demand curve for burritos. if the market price is $1.50, what is arnold's consumer surplus?
$2.25
vispana's gyros house sells gyros. calculate vispana's variable cost per day when she produces 50 gyros using two workers
$220
the figure shows the market for beer. the government plants to impose a unit tax in this market. how much of the tax is paid by buyers?
$5
if the market price is $20, what is the amount of the firm's profit?
$6,750
the figure shows the market for beer. the government plants to impose a unit tax in this market. what is the size of the unit tax?
$7
paul goes to dick's sporting goods to buy a new tennis racquet. he is willing to pay $200 for a new racquet, but buys one on sale for $125. paul's consumer surplus from the purchase is
$75
if the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?
$P2
what is the equilibrium hourly wage (W*) and the equilibrium quantity of labor (Q*)?
W*=$10.50; Q*=590,000
compared to a monopolistic competitor, a monopolist faces
a more inelastic demand curve
if an increase in income leads to an increase in the demand for peanut butter, then peanut butter is
a normal good
studies show that the income elasticity of demand for wine is approximately five. what does this mean?
a one percent increase in income leads to a five percent increase in wine consumption
rent control is an example of
a price ceiling
when roxanne, a u.s. citizen, purchases a designer dress from saks fifth avenue that was made in milan, the purchase is
a u.s. import and an italian export
according to public choice theory, policymakers
are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest
comparative advantage means the ability to produce a good or service
at a lower opportunity cost than any other producer
which of the following is the correct way to describe equilibrium in a market?
at equilibrium, quantity demanded equals quantity supplied
arlene quits her $125,000-a-year job to take care of her ailing parents. what is the opportunity cost of her decision?
at least $125,000
many economists support free international trade, maintaining that improves economic efficiency by causing goods to be produced
at the lowest opportunity cost
a situation in which a country does not trade with other countries is called
autarky
the vertical difference between curves F and G measures
average fixed costs
if the absolute value of the price elasticity of demand for aspirin equals 0.8 then
the demand for aspirin is inelastic
which country has a comparative advantage in the production of cotton?
indonesia
refer to the diagram to the right. point A is
inefficient in that not all resources are being used
the demand for gasoline in the short run is
inelastic because there are no good substitutes for gasoline
if a good has a negative income elasticity of demand, this indicates that the good is
inferior
the firm's gain in profit from hiring another worker is
the difference between marginal revenue product and the wage of the worker
suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. the economically efficient output is Q2. in that case, the diagram shows
the effect of a negative externality in the production of a good
suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. which of the following will happen?
the firm will not sell any output
a major factor contributing to the slow growth rate of less-developed economies is
the lack of well-defined and enforceable property rights
in economics, the optimal level of pollution is
the level for which the net benefit reducing the pollution is the greatest
in a competitive market equilibrium
the marginal benefit equals the marginal cost of the last unit sold
the figure to the right represents the market for pecans. assume that this is a competitive market. at a quantity of 4,000 pounds,
the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently low
what is the relationship among the following variables for a perfectly competitive firm: the market price, average revenue and marginal revenue?
the market price is equal to both average revenue and marginal revenue
a situation where a member of congress votes to approve a bill in exchange for favorable votes from other members on other bills is called
logrolling
suppose the monopolist represented in the diagram to the right produces positive output. what is the profit/loss per unit?
loss of $7 per unit
refer to the diagram to the right. the firm represented in the diagram makes
makes zero economic profit
in a perfectly competitive market, there are _____ buyers and _____ sellers
many; many
in economics, the term _______ means "additional" or "extra"
marginal
economists reason that the optimal decision is to continue any activity up to the point where the
marginal benefit equals the marginal cost
which of the following is true at the output level where average total cost is at its minimum?
marginal cost equals average total cost
in the short run, if the marginal product is at its maximum, then the
marginal cost it at its minimum
a perfectly competitive firm will maximize its profit at the level of output where the vertical distance between its total revenue curve and total cost curve is the largest. this is the same level of output where
marginal revenue equals marginal cost
for a perfectly competitive firm, at profit maximization
marginal revenue equals marginal cost
the efficient output level of a public good occurs where the
marginal social cost of producing the last unit is equal to the marginal social benefit realized by consumers
the demand by all the consumer of a given good or service is the ______ for the good or service
market demand
the price of a seller's product in perfect competition is determined by
market demand and market supply
because a monopoly's demand curve is the same as the market demand curve for its product,
the monopoly must lower its price to sell more of its product
implicit costs can be defined as
the non-monetary opportunity cost of using the firm's own resources
what is the voting paradox?
the observation that majority voting may not always result in consistent choices
which of the following is the best example of an oligopolistic industry?
the pharmaceutical industry
the supply curve of a perfectly competitive firm in the short run is
the portion of the firm's marginal cost curve above the minimum point of the average variable cost curve
suppliers will be willing to supply a product only if
the price received is at least equal to the additional cost of producing the product
adam smith's invisible hand refers to
the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole
at a product's equilibrium price
the product's demand curve crosses the product's supply curve
economists james buchanan and gordon tullock are well-known for developing
the public choice model
the law of demand implies, holding everything else constant, that as the price of bagels increases,
the quantity of bagels demanded will decrease
what are property rights?
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it
the minimum efficient scale is
the smallest level of operation where long run average costs are lowest
refer to the diagram to the right which shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. what is the opportunity cost of one pound of meat?
1 1/3 pounds of vegetables
the marginal product of the 3rd worker is
15
if the rate is $40, how many workers should dale hire?
3
refer to the diagram to the right which shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, mean and vegetables. what is the opportunity cost of one pound of vegetables?
3/4 pounds of meat
what is honduras's opportunity cost of producing one sailboat
5 canoes
if 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is
5 units
the marginal product of the fourth unit of labor is
60
what is the economically efficient output level?
940
refer to the diagram to the right. identify the curves in the diagram
E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve
the firm's profit maximizing price is
P3
the diagram shows two supply surves, Sa and Sb. as price rises from P0 to P1, which supply curve is more elastic?
Sb
suppose the value of the price elasticity of demand it -3. what does this mean?
a 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent
economists refer to a market where buying and selling take place at prices that violate government price regulations as
a black market
offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of
a coasian solution to an externality situation
countries that engage in trade will tend to specialize in the production of goods and services in which they have ______ and will _____ these goods and services
a comparative advantage; export
which of the following is the best example of a perfectly competitive firm?
a corn farmer in illinois
which of the following would cause an increase in the equilibrium price and decrease in the equilibrium quantity of watermelon?
a decrease in supply
ranchers can raise either cattle or sheep on their land. which of the following would cause the supply of sheep to increase?
a decrease in the price of cattle
which of the following would cause the equilibrium price to decrease and the equilibrium quantity of white bread to increase?
a decrease in the price of flour
a cartel is
a group of firms that enter into a formal agreement to fix prices to maximize joint profits
who was the economist who first analyzed the advantages of specialization and the division of labor?
adam smith
the market demand for a public good can be determined by
adding up how much each consumer is willing to pay for each unit of the public good
a characteristic of the long run is
all inputs can be varied
of the following examples, which would likely be performed by an economist working for apple?
all of the above
perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit. this condition is referred to as
allocative efficiency
voluntary exchange between buyers and sellers generates _______ in a market economy
allocative efficiency
what is the difference between an "increase in demand" and an "increase in quantity demanded"?
an "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve
collusion is
an agreement among firms to charge the same price or otherwise not to compete
suppose a negative externality exists in a market. if transactions costs are low and parties are willing to bargain then, according to the coase theorem
an efficient solution can be reached regardless of the initial assignment of property rights
as more output is produced, the marginal product of labor declines
because of the law of diminishing returns
consumers benefit from monopolistic competition by
being able to choose from products more closely suited to their tastes
eliminating a tariff on running shoes would _____ businesses that sell running shoes and ______ consumers who purchase them
benefit; benefit
if the firms cooperate, what prices will they select?
both firms will select a high price
whenever a buyer and a seller agree to trade,
both must believe they will be made better off
both monopolistically competitive firms and perfectly competitive firms maximize profits
by producing where marginal revenue equals marginal cost
perfect price discrimination is also known as
first-degree price discrimination
marginal cost is equal to the
change in total cost divided by the change in output
if a firm could practice perfect price discrimination, it would
charge every buyer a different price
a cooperative equilibrium results when firms
choose the strategy that maximizes the total game payoff
which of the following generates productive efficiency?
competition among sellers
a firm that can effectively price discriminate will charge a higher price to
customers who have the more inelastic demand for the product
which of the following statements about the price of elasticity of demand is correct?
demand is more elastic in the long run than it is in the short run
the selling of a product for a price below its cost of production is called
dumping
a market comprising of only two firms is called a
duopoly
which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?
each maximizes profits by producing a quantity for which marginal revenue equals marginal cost
which of the following is a reason why cartels often break down?
each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement
if, when a firm doubles all its inputs, its average cost of production decreases, then production displays
economies of scale
twenty-eight countries in europe have eliminated all tariffs with each other. this group of countries is known as
european union
a monopolistically competitive industry that earns economic profits in the short run will
experience the entry of new rival firms into the industry in the long run
the rules of accounting generally require that _____ costs be used for purposes of keeping a company's financial records and for paying taxes. these costs are sometimes called _____ costs
explicit; accounting
the study of how people make decisions in situations where attaining their goals depends on their interactions with others is called
game theory
the process of countries becoming more open to foreign trade and investment is known as
globalization
a patent or copyright is a barrier to entry based on
government action to protect a producer
the table above shows the output per week of two jewelers, serena and haley. which of the following statements is true?
haley has an absolute & comparative advantage in making bracelets and serena in making necklaces
congress passed the clean air act in 1970. since this act was passed, emissions of the six main air pollutants
have fallen by more than one-half
if the two countries specialize and trade, who should export sailboats?
honduras
how are the fundamental economic questions answered in a market economy?
households and firms interact in markets to decide the answers to these questions
which of the following could explain why the demand for table salt is inelastic?
households devote a very small portion of their income to salt purchases
price elasticity of demand measures
how responsive quantity demanded is to a change in price
which of the following is a positive economic statement?
if the price of iphones falls, a larger quantity of iphones will be purchased
a tariff is a tax imposed by government on
imports
where do economic agents such as individuals, firms, and nations, interact with each other?
in any arena that brings together buyers and sellers
what is the nash equilibrium in this game?
in the nash equilibrium saudi arabia produces a low output and earns a profit of $80 million and ecuador produces a high output and earns a profit of $22 million
which of the following is a source of market failure?
incomplete property rights or inability to enforce property rights
a production possibilities frontier with a bowed-outward shape indicates
increasing opportunity costs as more and more of one good is produced
a characteristic found only in oligopolies is
interdependence of firms
for a monopolistically competitive firm, marginal revenue
is less than the price
the median voter theorem states that the outcome of a majority vote
is likely to represent the preferences of the voter who is in the political middle
a dominant strategy
is one that is the best for a firm, no matter what strategies other firms use
protectionism
is the use of trade barriers to protect domestic firms from foreign competition
if society decides it wants more of one good and all resources are fully utilized, then
it has to give up some of another good and incur some opportunity costs
excess capacity is a characteristic of monopolistically competitive firms. what does excess capacity mean?
it means that firms do not produce the output level that corresponds to the minimum point on their average total cost curves
what is it meant by the term "rational ignorance"?
it means the lack an economic incentive for voters to become informed about a pending legislation
if a firm shuts down in the short run,
its loss equals its fixed cost
in the short run, a profit maximizing firm's decision to produce should be guided by whether
its total revenue covers its variable cost
who won a nobel prize in economics for his work in the development of game theory?
john nash
which of the following activities create a negative externality?
keeping a junked car parked on your front lawn
the inelastic segment of the demand curve
lies below the midpoint of the curve
an economic ______ is a simplified version of some aspect of economic life used to analyze an economic issue
model
movie theaters often charge higher ticket prices for evening showings than for afternoon showings. why is this the case?
movie theaters know that many people are willing to pay more to see a movie in the evening than during the afternoon
a situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a
nash equilibrium
if a typical firm in a perfectly competitive industry is earning profits, then
new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease
with perfect price discrimination there is
no deadweight loss
the arrow impossibility theorem states that
no system of voting can be devised that will always consistently represent the underlying preferences of voters
if, hiring another worker would increase output by three units per hour, then to maximize profits the firm should
not hire an additional worker
an example of a barrier to entry is
occupational licensing
private producers have no incentive to provide public goods because
once produced, it will not be possible to exclude to those who do not pay for the good
in economics, the term "free-rider" refers to
one who waits for others to produce a good and then enjoys its benefits without paying for it
refer to the diagrams above. a perfectly elastic demand curve is shown in
panel B
refer to the diagrams above. a unit elastic supply curve is shown in
panel C
the entry and exit of firms in a monopolistically competitive market guarantee that
price equals average total cost in the long run
total revenue equals
price per unit times quantity sold
the reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because
products are differentiated
free trade _____ living standards by _____ economic efficiency
raises; increasing
if a firm raised its price and discovered that its total revenue fell, then the demand for its product is
relatively elastic
economists also examine the actions of individuals and firms as they attempt to use government to make themselves better off at the expenses of others, a process that is referred to as
rent seeking
in walnut creek, california, there are three very popular supermarkets: safeway, whole foods, and lunardi's. while safeway remains open twenty−four hours a day; whole foods and lunardi's close at 9 pm. which of the following statements is true?
safeway has a monopoly at midnight but not during the day
sarita and gabriel own s&g bakery. select the statement that accurately interprets the data in the table
sarita has a comparative advantage in baking cakes
in economics, choices must be made because we live in a world of
scarcity
what is sefronia likely to do, given that she is as rational as any other person?
she might claim that she is not willing to pay for a housecleaner, hoping that bella would pay the entire $80
if the cross-price elasticity of demand for two goods is positive, this implies that the two goods are
substitutes
tomas increased his consumption of potato chips when the price of pistachios increased. for tomas, potato chips and pistachios are
substitutes
the table shows the demand and supply schedules for the labor market in the city of pixley. if a minimum wage of $11.50 is mandated, there will be a
surplus of 40,000 units of labor
the actual division of the burden of a tax between buyers and sellers in a market is called
tax incidence
allocative efficiency is achieved when firms produce goods and services
that consumers value most
the curve labeled "F" is
the average product curve
by definition, economics is the study of
the choices people make to attain their goals, given their scarce resources
the equilibrium wage and quantity of labor in the market for skilled workers is determined by
the demand and supply of labor
during the covid-19 pandemic, most gyms were forced to close due to social distancing requirements. what likely happened in the market for home fitness equipment during this pandemic?
the demand curve shifted to the right
economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which
the sum of consumer surplus and producer surplus is at a maximum
which of the following is an example of a common resource?
the sumatran tiger population in the wild
in 2004, hurricanes destroyed a large portion of florida's orange and grapefruit crops. in the market for citrus fruit,
the supply curve shifted to the left resulting in an increase in the equilibrium price
suppose favorable weather resulted in a bumper crop of oranges in florida. in the market for oranges
the supply curve shifted to the right resulting in a decrease in the equilibrium price
in october, market analysts predict that the price of platinum will fall in november. what happens in the platinum market in october, holding everything else constant?
the supply curve shifts to the right
the ratio at which a country can trade its exports for imports from other countries is called
the terms of trade
in a perfectly competitive industry, in the long−run equilibrium
the typical firm earns zero profit
which of the following correctly describes the relationship between economic efficiency and economic equity?
there is often a trade-off between the two
monopolistically competitive firms can differentiate their products
through marketing
without an increase in the supply of the factors of production, how can a nation achieve economic growth?
through technological advancement which enables more output with the same quantity of resources
companies producing toilet paper bleach the paper to make it white. an efficient way to get the firm to produce the socially optimal output level is
to impose a tax to make the industry bear the external costs it creates
the term used by economists to describe a situation in which one country raises tariffs and other countries retaliate by raising tariffs on the first country's exports is
trade war
refer to the diagram to the right. point C is
unattainable with current resources
a firm that successfully differentiates its product or lowers its average cost of production creates
value for its customers
which of the following is a microeconomic question?
what factors determine the price of carrots?
a perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. the fixed cost of production is $20,000. the price of each good is $10. Should the firm continue to produce in the short run?
yes, it should continue to produce because the firm's revenues cover the total variable cost of $16,000
what is the fixed cost of production?
$1,000
refer to the table to the right. what is the marginal revenue of the 3rd unit?
$5.50
if the market price is $20, what is the firm's profit maximizing output?
1,350
in long−run equilibrium, compared to a perfectly competitive market, a monopolistically competitive industry produces a ________ level of output and charges a ________ price.
lower; higher
insurance companies typically charge women lower prices than men for automobile insurance. is this an example of price discrimination?
no, because, on average, women have better driving records than men and the costs of insuring men are greater than the costs of insuring women
is this candy store maximizing its profit and if it is not, what would you recommend to the firm?
no, it is not; it should lower its charging price to Pb and sell Qb units
is there a dominant strategy for airporter and if so, what is it?
no, its outcome depends on what limozeenz does
is there a dominant strategy for saudi arabia and, if so, what is it?
yes, the dominant strategy is to produce a low output
