Micro Exams

Which of the following is not a characteristic of pollution permits?

Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.

Refer to Figure above. The movement from point A to point B on the graph is caused by

a decrease in price.

Refer to Figure above. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be

between P1 and P2.

For a self-sufficient producer, the production possibilities frontier

is the same as the consumption possibilities frontier.

An economy's production of two goods is efficient if

it is impossible to produce more of one good without producing less of the other.

In the short run, an increase in the money supply is likely to lead to

lower unemployment and higher inflation.

Refer to Figure above. The social cost curve is above the supply curve because

it takes into account the external costs imposed on society by tobacco consumption.

The term used to describe a situation in which markets do not allocate resources efficiently is

market failure.

In a market economy, economic activity is guided by

self-interest and prices.

Rent control

serves as an example of a price ceiling.

Refer to Figure above. At a price of $10, there would be a

shortage of 600 units.

When positive externalities are present in a market

social benefits will be greater than private benefits.

The production possibilities frontier illustrates

the combinations of output that an economy can produce.

A key determinant of the price elasticity of supply is the

time horizon.

Refer to Figure above. This graph represents the tobacco industry. The socially optimal price and quantity are

$2.80 and 48 units, respectively.

Refer to Figure above. If the government imposes a price floor of $110 in this market, then consumer surplus will decrease by

$200

Refer to Figure above. The amount of revenue collected by the government from the tariff is

$200

Refer to Figure above. What is the amount of the tax per unit?

$4

Refer to Figure above. The socially optimal quantity of output is

140 units, since the value to society of the 140th unit is equal to the cost incurred by the seller of the 140th unit.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.60 to $6.50 and, as a result, the quantity of bags demanded increases from 600 to 620. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

2.15

Refer to Figure above. The opportunity cost of this economy moving from point B to point C is

20 knives

If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a

50.00 percent decrease in the quantity demanded.

Which of the following changes would not shift the demand curve for a good or service?

A change in the price of the good or service.

For which of the following individuals would the opportunity cost of going to college be highest?

A famous, highly paid actor who wants to take time away from show business to finish college and earn a degree

Refer to Figure above. Which of the following events would explain the shift of the production possibilities frontier from A to B?

A general technological advance

Which of the following statements about models is correct?

Because economic models omit many details, they allow us to see what is truly important.

Refer to Figure above. Chloe receives her first paycheck for working as a pretzel vendor. To which of the arrows does this transaction directly contribute?

C only

Refer to Figure above. The deadweight loss created by the tariff is represented by the area

D + F

A decrease in the price of a product and an increase in the number of buyers in the market affect the demand curve in the same general way.

False

Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of foreign competition.

False

Government policies that improve equality usually increase efficiency at the same time.

False

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

False

If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.

False

If the price elasticity of demand is equal to 0, then demand is unit elastic.

False

The "invisible hand" influences market behavior through trade.

False

Total surplus in a market can be measured as the area below the supply curve plus the area above the demand curve, up to the point of equilibrium

False

When markets open up to international trade, we know that consumer surplus will rise.

False

Refer to Figures above. The rate of trade-off between producing chairs and producing couches is constant in

Graph (b) only.

Assume, for India, that the domestic price of copper without international trade is lower than the world price of copper. This suggests that, in the production of copper,

India has a comparative advantage over other countries and India will export copper.

If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then

Iowa has a comparative advantage in the production of corn.

For which pairs of goods is the cross-price elasticity most likely to be positive?

Pens and pencils

Trade between countries

allows each country to consume at a point outside its production possibilities frontier.

Refer to Figure above. Which of the following movements would illustrate the effect of an increase in the incomes of parents with school-aged children on the market for soccer lessons?

Point C to Point B

Which of the following is an example of a positive, as opposed to normative, statement?

Prices rise when the government prints too much money.

Which of the following events would increase producer surplus?

Sellers' costs stay the same and the price of the good increases.

Which of the following is NOT a way of internalizing technology spillovers?

Taxes

Which of the following would likely be studied by a macroeconomist rather than a microeconomist?

The effect on the economy of changes in the nation's unemployment rate

Which is the most accurate statement about trade?

Trade can make every nation better off.

A decrease in supply will cause an increase in price, which will cause a decrease in quantity demanded.

True

A price ceiling set above the equilibrium price is not binding.

True

An increase in price increases consumer surplus.

True

Economists often find it worthwhile to make assumptions that do not necessarily describe the real world.

True

If a major union goes on strike, then the country would be operating inside its production possibilities frontier.

True

If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply approaches infinity.

True

In principle, trade can make a nation better off, because the gains to the winners exceed the losses to the losers.

True

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.

True

Patent protection is one way to deal with technology spillovers.

True

Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium without trade, thus reducing the gains from trade.

True

The production possibilities frontier shows the trade-offs that the producer faces but does not identify the choice the producer will make.

True

Who gets scarce resources in a market economy?

Whoever is willing and able to pay the price

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

a transaction cost.

To say that a price ceiling is nonbinding is to say that the price ceiling

is set above the equilibrium price.

When we move along a given supply curve,

all nonprice determinants of supply are held constant.

Refer to Figure above. The movement from point A to point B on the graph is caused by

an increase in price.

A decrease in supply will cause the largest increase in price when

both supply and demand are inelastic.

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

Two types of private solutions to the problem of externalities are

charities and the Golden Rule.

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

command-and-control policy.

Refer to Figure above. If this country allows free trade in tricycles,

consumers will gain and producers will lose.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be.

If the government removes a binding price floor from a market, then the price paid by buyers will

decrease, and the quantity sold in the market will increase.

Refer to Figure above. The imposition of a tariff on roses

decreases the number of roses imported by 200.

Refer to Figure above. The price ceiling causes quantity

demanded to exceed quantity supplied by 90 units.

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution

is less costly to society.

Suppose the cross-price elasticity of demand between peanut butter and jelly is −2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

fall by 50 percent.

Refer to Figure above. With trade, this country

imports 320 tricycles.

A gardener has the ability to grow either apples or pears or some combination of the two. Given no other information, it follows that the gardener's opportunity cost of a pound of apples multiplied by his opportunity cost of a pound of pears

is equal to 1.

Refer to Figure above. If the price decreased from $36 to $12, total revenue would

increase by $4,800, and demand is elastic between points X and Z.

If the price elasticity of supply is 0.7, and price increased by 24 percent, quantity supplied would

increase by 16.80 percent.

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donuts sellers.

When an externality is present, the market equilibrium is

inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

Absolute advantage is found by comparing different producers'

input requirements per unit of output.

The business cycle is the

irregular fluctuations in economic activity.

The infant-industry argument

is based on the belief that protecting industries when they are young will pay off late

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

positive, and the good is a normal good.

When a country that exported a particular good abandons a free-trade policy and adopts a no-trade policy,

producer surplus decreases and total surplus decreases in the market for that good.

When a country that imports a particular good imposes a tariff on that good,

producer surplus increases and total surplus decreases in the market for that good.

According to the Coase theorem, private parties can solve the problem of externalities if

property rights are clearly defined.

Refer to Figure above. In this market, a minimum wage of $6 creates a labor

surplus of 12,000 worker hours.

Refer to Figure above. In this market, a minimum wage of $6 creates a labor

surplus of 4,000 worker hours.

A tax on an imported good is called a

tariff.

The "unfair-competition" argument might be cited by an American who believes that

the French government's subsidies to French farmers justify restrictions on American imports of French agricultural products.

A baker recently has come to expect higher prices for bread in the near future. We would expect

the baker to supply less bread now than she was supplying previously.

The term tax incidence refers to

the distribution of the tax burden between buyers and sellers.

efer to Figure above. With trade and without a tariff,

the domestic price is equal to the world price.

Which of the following is not a commonly-advanced argument for trade restrictions?

the efficiency argument

In some cases, tradable pollution permits may be better than a corrective tax because

the government can set a maximum level of pollution using permits.

A production possibilities frontier is bowed outward when

the rate of trade-off between the two goods being produced depends on how much of each good is being produced.

Refer to Figure above. The graph represents a market in which

there is a positive externality.