Micro Final Exam

The invisible hand is mostly guided by ________. A) market prices B) the quantity of goods and services sold C) government intervention D) the costs of production

Market prices

Which of the following statements is true of market prices in a perfectly competitive market? A) Market prices are not stable and fluctuate widely. B) Market prices do not act as incentives for buyers. C) Market prices allow for the efficient allocation of scarce resources. D) Market prices are determined by the government.

Market prices allow for the efficient allocation of scarce resources.

If the supply of a good is unit-elastic, then a 50 percent increase in the price of the good will result in a ________ in quantity supplied. A) 50 percent increase B) 50 percent decrease C) 25 percent increase D) 25 percent decrease

50 percent increase

Which of the following factors will NOT cause a shift in the demand for a good? A) A change in consumer incomes B) A change in tastes and preferences C) A change in the number of consumers D) A change in the market price of the good

A change in the market price of the good

Economics is primarily the study of ________. A) the relationship between matter and its motion B) agents' choices and their impact on society C) events of the past and how these events affect present human behavior D) the different types of governments and the impact of their policies on a nation

Agents' choices and their impact on society.

Free trade refers to the ability of ________. A) developed countries to provide financial aid to the developing nations B) all countries to trade without hindrance or encouragement from the government C) developing countries to make payments for the import of goods at the end of every year D) developed countries to set the world prices of most goods and services

All countries to trade without hindrance or encouragement from the government

Which of the following statements correctly describes a perfectly competitive market? A) All participants in a perfectly competitive market are price-takers. B) Haggling and bargaining is commonly observed in a perfectly competitive market. C) In a perfectly competitive market, individual sellers and buyers can influence the market price. D) Buyers in a perfectly competitive market pay different prices according to their individual demand.

All participants in a perfectly competitive market are price-takers.

A consumer's budget refers to the ________. A) wealth the consumer has acquired over time B) average prices of the goods and services bought by the consumer C) amount of money the consumer can spend on various goods and services D) difference between the consumer's willingness to pay for goods and services and the amount actually paid.

Amount of money the consumer can spend on various goods and services

A firm should shut down in the short run if the price of a good is less than its ________. A) average fixed cost B) average total cost C) average variable cost D) marginal cost

Average variable cost

A(n) ________ market is a non-legal market for regulated goods and services. A) black B) closed C) oligopoly D) open

Black

A ________ occurs when government spending exceeds tax revenue. A) budget deficit B) negative externality C) consumer surplus D) positive externality

Budget deficit

The assumption that each firm in a perfectly competitive market is a price taker basically means that ________. A) market price is independent of the level of industry output B) each firm's supply curve is perfectly elastic C) the firm can take any price it wants to choose and still sell all its output D) changes in the output of an individual firm do not affect the market price

Changes in the output of an individual firm do not affect the market price

The idea behind legalization of recreational marijuana is in line with ________. A) paternalism B) consumer sovereignty C) empiricism D) socialism

Consumer sovereignty

Which of the following statements is true? A) Correlation can only occur when causation is not present. B) Causation can only occur when correlation is not present. C) Correlation occurs when there is causation and can also occur when there is no causation. D) Causation occur when there is correlation between two variables and can also occur when there is no correlation.

Correlation occurs when there is causation and can also occur when there is no causation.

Empiricism is analysis that uses ________ to test theories. Empiricism is analysis that uses ________ to test theories. A) data B) illustrations C) philosophy D) value judgments

Data

Which of the following is an example of specialization? A) The output of workers in a chocolate factory doubling when a new manager was appointed B) The cost of production of a light bulb making factory decreasing as its capacity increased C) Different workers in a shoe factory being allotted different parts of shoe making instead of a worker making an entire shoe D) The import of better technology and machinery from developed countries greatly increasing the number of laser printers manufactured by a company

Different workers in a shoe factory being allotted different parts of shoe making instead of a worker making an entire shoe

Equity refers to ________. A) Minimizing deadweight loss B) Distributing resources across society (how the economic pie is divided) C) Ensuring that all producer surplus is transferred to consumers D) Making the economic pie as large as possible

Distributing resources across society (how the economic pie is divided)

The term "free riders" refers to people who ________. A) don't contribute but still benefit from others' actions B) make economic decisions randomly and are not rational C) selflessly pay for others' consumption of goods and services D) haggle over the prices of the goods and services that they buy

Don't contribute but still benefit from others' actions

Which of the following is true? A) Accounting profits = Revenues − Implicit costs − Explicit costs B) Economic profits = Revenues − Explicit costs C) Accounting profits = Revenues − Implicit costs D) Economic profits = Accounting profits − Implicit costs

Economic profits = Accounting profits − Implicit costs

Exam 1

Exam 1

Exam 2

Exam 2

The shift toward more open, integrated economies that participate in foreign trade and investment is referred to as ________. A) traditionalism B) protectionism C) globalization D) fair trade promotion

Globalization

A Pigouvian tax is a tax designed to ________. A) induce the producers generating positive externalities to reduce production B) force the producers to stop the production of a good in the short run C) induce the consumers of a good to reduce their consumption of the good D) induce the producers generating negative externalities to reduce production

Induce the producers generating negative externalities to reduce production

Which of the following is NOT considered corruption? A) Accepting gifts from businesses that result in conflicts of interest B) Misallocation of resources for personal use C) Misuse of public funds D) Inefficient bureaucracy in tax collection

Inefficient bureaucracy in tax collection

The equilibrium quantity in a perfectly competitive market is determined at the point of ________. A) intersection of the demand and supply curves B) tangency between the demand and supply curves C) intersection of the supply curve and the quantity axis D) intersection of the demand curve and the quantity axis

Intersection of the demand and supply curves

If a country is a price taker for a good in the world market, ________. A) its demand for the good remains the same irrespective of changes in world prices B) its consumption and production decisions for the good play a key role in determining world prices C) it is the only exporter of the good in the world market D) its consumption and production decisions for the good do not affect world prices

Its consumption and production decisions for the good do not affect world prices

A firm will maximize profit at the level of output where ________. A) its marginal revenue equals its total cost B) its marginal revenue equals its marginal cost C) its total cost equals its total revenue D) its average revenue equals its average cost

Its marginal revenue equals its marginal cost

Two goods are said to be substitutes when a fall in the price of one good ________. A) leads to a rise in the price of the other good B) does not affect the demand for the other good C) leads to a leftward shift in the demand for the other good D) leads to a rightward shift in the demand for the other good

Leads to a leftward shift in the demand for the other good

Two goods are said to be complements when a fall in the price of one good ________. A) leads to a fall in the price of the other good B) does not affect the demand for the other good C) leads to a leftward shift in the demand for the other good D) leads to a rightward shift in the demand for the other good

Leads to a rightward shift in the demand for the other good

Assume that a seller in a perfectly competitive market charges more than the equilibrium price. It is likely that this seller will ________. A) increase his profit B) increase his sales C) lose only a few buyers D) lose almost all of his buyers

Lose almost all of his buyers

An optimizing consumer has to choose between two goods: Good A priced at PA and Good B priced at PB. Given that MBA is the marginal benefit from consuming Good A and MBB is the marginal benefit from consuming Good B, the consumer's well-being will be maximized at the point where ________. A) MBA = MBB B) MBA/PB = MBB/PA C) MBA/PA = MBB/PB D) MBA = MBB/PB

MBA/PA = MBB/PB

________ is the incremental cost generated by moving from one feasible alternative to the next feasible alternative. A) Total cost B) Indirect cost C) Marginal cost D) Opportunity cost

Marginal Cost

The reservation value of a seller reflects her ________. A) marginal cost B) total cost C) willingness to pay for using a resource D) marginal revenue

Marginal cost

A production possibilities curve shows the ________. A) relationship between the price of a good and its quantity supplied B) different combinations of two inputs used to produce a given quantity of output C) maximum production of one good for a given level of production of another good D) quantity of output produced and the amount of inputs required for the production of the output

Maximum production of one good for a given level of production of another good

Which of the following is a feature of models? A) Models are the same as hypotheses. B) Models help in making predictions for the future. C) Models are more complicated than real life phenomena. D) Models are as complex as the phenomenon being studied.

Models help in making predictions for the future.

The Coase Theorem relies on internalizing externalities through ________. A) the imposition of corrective taxes B) the provision of corrective subsidies C) social enforcement mechanisms D) negotiations between the parties involved

Negotiations between the parties involved

Making choices by selecting the best feasible option, given the available information, is referred to as ________. A) delegation B) imposition C) actualization D) optimization

Optimization

Which of the following statements identifies a difference between optimization using total value and optimization using marginal analysis? A) Optimization using total value compares only the costs of different alternatives, whereas optimization using marginal analysis compares only the benefits of different alternatives. B) Optimization using total value compares only the benefits from different alternatives, whereas optimization using marginal analysis compares only the costs of different alternatives. C) Optimization using total value calculates the net benefits of different alternatives, whereas optimization using marginal analysis calculates the change in net benefits when switching from one alternative to another. D) Optimization using total value calculates the change in net benefits when switching from one alternative to another, whereas optimization using marginal analysis calculates the net benefits of different alternatives.

Optimization using total value calculates the net benefits of different alternatives, whereas optimization using marginal analysis calculates the change in net benefits when switching from one alternative to another.

The view that consumers do not always know what is best for them, and that the government should encourage them to modify their behavior, is known as ________. A) consumer sovereignty B) equity-efficiency trade-off C) the welfare state D) paternalism

Paternalism

Which of the following statements correctly differentiates between positive and normative economics? A) Positive economics is descriptive, whereas normative economics is advisory. B) Positive economics is based on judgments, whereas normative economics is not. C) Positive economics describes what people ought to do, whereas normative economics describes what people actually do. D) Positive economics can only be applied to microeconomics, whereas normative economics can be applied to both microeconomics and macroeconomics.

Positive economics is descriptive, whereas normative economics is advisory.

The incentive for new firms to enter a perfectly competitive market is primarily the ________. A) existence of a large number of firms in the market B) large number of buyers in the market C) high level of government intervention in the market D) positive profits earned by the existing firms in the market

Positive profits earned by the existing firms in the market

Positive economic profits in a perfectly competitive market imply that ________. A) producers are earning more than their opportunity cost B) government intervention is required to stabilize the market C) existing firms are likely to leave the market D) the cost of production is equalized across producers

Producers are earning more than their opportunity cost

Efficiency is achieved in competitive markets because ________. A) social surplus is maximized (the economic pie is made as large as possible) B) producer surplus is maximized C) consumer surplus is maximized D) deadweight loss is maximized

Social surplus is maximized (the economic pie is made as large as possible)

Gabriel's demand for chocolate bars is inelastic. If the price of chocolate bars increases, he will ________. A) spend the same amount of money on chocolate as before B) spend less money on chocolate than before C) spend more money on chocolate than before D) buy the same number of chocolate bars as before

Spend more money on chocolate than before

________ are costs that, once committed, can never be recovered and should not affect current and future production costs. A) Opportunity costs B) Marginal costs C) Sunk costs D) Variable costs

Sunk costs

Suppose the government imposes a tax on Good X. In order to estimate the effect of the tax on the quantity demanded Good Y, a related good, we can use the concept of ________. A) the price elasticity of demand B) deadweight loss C) the cross-price elasticity of demand D) the budget constraint

The cross-price elasticity of demand

Consumer surplus is ________. A) the difference between the willingness to pay for a good and the price paid for the good B) the sum of the willingness to pay for a good and the price paid for the good C) the product of the willingness to pay for a good and the price paid for the good D) the ratio of the willingness to pay for a good to the price paid for the good

The difference between the willingness to pay for a good and the price paid for the good

Bringing water from people who are not thirsty to people who are thirsty using a leaky bucket is an illustration of ________. A) the efficiency costs involved in the redistribution of income B) a loss of efficiency due to free markets C) costs in the regulation of an economy D) forgone tax revenues resulting from an inefficient tax system

The efficiency costs involved in the redistribution of income

Government failures refer to ________. A) the incapacity to form a government B) the absence of government interventions C) the inefficiencies caused by a government's interventions D) policies implemented without the consent of citizens

The inefficiencies caused by a government's interventions

Governments impose taxes for all of the following reasons EXCEPT ________. A) correcting market failures and externalities B) redistributing income through the use of transfer payments C) generating profits D) raising revenues

generating profits

Efficient government intervention requires that ________. A) the marginal benefits of intervention be just equal to the marginal costs of intervention B) there be no productivity losses in the private sector as a result of government intervention C) the cost of government enforcement be zero D) intervention should continue until all negative externalities have been eliminated

The marginal benefits of intervention be just equal to the marginal costs of intervention

Government invention is required to solve externality problems if ________. A) transaction costs associated with private negotiations are low B) property rights are clearly defined C) the number of people affected by the externality is large D) the number of people affected by the externality is small

The number of people affected by the externality is large

The percentage change in the quantity demanded of a good due to a percentage change in its price is referred to as ________. A) the cross-price elasticity of demand B) the price elasticity of demand C) the income elasticity of demand D) consumer surplus

The price elasticity of demand

The Law of Demand states that ________. A) the demand for a commodity is directly related to consumers' income, all other things remaining constant B) the demand for a commodity always equals the supply of the commodity C) the quantity demanded of a commodity varies inversely with the price of the commodity, all other things remaining constant D) the quantity demanded of a commodity is the same for all consumers in a perfectly competitive market

The quantity demanded of a commodity varies inversely with the price of the commodity, all other things remaining constant

The Law of Supply states that ________. A) supply creates its own demand B) the quantity supplied of a good rises when the price rises, all other things remaining constant C) at the equilibrium price, there is always some excess supply in the market D) the quantity supplied of a good will always equal the quantity of the good demanded

The quantity supplied of a good rises when the price rises, all other things remaining constant

Which of the following is true of individual income taxes? A) Individual income taxes are collected only by state governments. B) The rate of income tax imposed by states in the U.S. varies. C) Individual income taxes are collected only by the federal government. D) All states in the U.S. collect individual income taxes.

The rate of income tax imposed by states in the U.S. varies.

Elasticity is ________. A) the sum of the percentage changes in two variables B) the difference between the percentage changes in two variables C) the product of the percentage changes in two variables D) the ratio of the percentage changes in two variables

The ratio of the percentage changes in two variables

The slope of a consumer's budget constraint equals ________. A) the ratio of the income of the consumer to the price of the good measured along the horizontal axis B) the ratio of the price of the good measured along the vertical axis to the price of the good measured along the horizontal axis C) the ratio of the price of the good measured along the horizontal axis to the price of the good measured along the vertical axis D) the ratio of the income of the consumer to the price of the good measured along the vertical axis

The ratio of the price of the good measured along the vertical axis to the price of the good measured along the horizontal axis

A maximized social surplus in an economy means that ________. A) there is an even distribution of income among the people in that economy B) the sum of consumer and producer surpluses have the largest possible value C) each of the consumer surplus, and the producer surplus have their largest possible values D) it is possible to make some people better off without making any other person worse off

The sum of consumer and producer surpluses have the largest possible value

Which of the following can result in the tragedy of the commons? A) The tendency of consumers to use common pool resources without paying for them B) A high rate of taxation on common pool resources C) The use of common pool resources above the socially optimal level D) A low level of satisfaction derived from the use of common pool resources

The use of common pool resources above the socially optimal level

If prices are held above the equilibrium price, ________. A) there will be a surplus in the market B) all firms will incur losses C) there will be a shortage in the market D) social surplus will be maximized

There will be a shortage in the market

If prices are held below the equilibrium price, ________. A) there will be a surplus in the market B) social surplus will be maximized C) there will be a shortage in the market D) all firms will earn positive economic profits

There will be a shortage in the market

Which of the following is the difference between variable costs and fixed costs? A) Variable costs are the costs incurred on variable factors of production, whereas fixed costs are the costs incurred on all factors of production. B) Variable costs of a firm are zero after a firm shuts down, whereas the firm continues to incur the fixed costs of production in the short run. C) Variable costs exist even when production is zero, whereas fixed costs exist only when there is some positive level of production. D) Variable costs are incurred by a firm only in the long run, whereas the firm incurs some fixed costs in both the short run and the long run.

Variable costs of a firm are zero after a firm shuts down, whereas the firm continues to incur the fixed costs of production in the short run.

Which of the following is the best definition of an externality? A) When a worker takes a job "off the books" to avoid paying taxes B) When an economic activity imposes spillover costs or benefits on a third party C) When government intervention in a market reduces consumer surplus D) When firms sell products at a price greater than marginal cost

When an economic activity imposes spillover costs or benefits on a third party

Imagine that the economy resembles a pie. In this analogy, ________ concerns with growing the size of the pie, while ________ concerns with how the pie if distributed among the people. A) equity; optimization B) efficiency; optimization C) equity; efficiency D) efficiency; equity

efficiency; equity

A(n) ________ is any good that is produced domestically but sold abroad, and a(n) ________ is any good that is produced abroad but sold domestically. A) public good; private good B) import; export C) export; import D) private good; public good

export; import

If a government decides to move from a regressive tax system to a progressive tax system, there will be a(n) ________ in equity and a(n) ________ in efficiency. A) increase; decrease B) decrease; decrease C) increase; increase D) decrease; increase

increase; decrease

In a competitive market, there are a ________ number of buyers and a ________ number of sellers. A) large; small B) small; large C) small; small D) large; large

large; large

Private solutions to externalities are most effective if ________. A) the transaction costs associated with bargaining are low B) a large number of people are affected by the externalities C) property rights are not defined clearly D) the transaction costs associated with bargaining are high

the transaction costs associated with bargaining are low