Microeconomics 231 - Test 2 - Practice Questions

If you owned a small farm, which of the following would most likely be a fixed cost? a) Harvest labor. b) Hail insurance. c) Fertilizer. d) Seed.

b) Hail insurance.

Which of the following generalizations is not correct? a) The larger an item is in one's budget, the greater the price elasticity of demand. b) The price elasticity of demand is greater for necessities than it is for luxuries. c) The larger the number of close substitutes available, the greater will be the price elasticity of demand for a particular product. d) The price elasticity of demand is greater the longer the time period under consideration.

b) The price elasticity of demand is greater for necessities than it is for luxuries.

When a consumer shifts purchases from product X to product Y, the marginal utility of: a) X falls and the marginal utility of Y rises. b) X rises and the marginal utility of Y falls. c) both X and Y rises. d) both X and Y falls.

b) X rises and the marginal utility of Y falls.

The law of diminishing marginal utility states that: a) total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. b) beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer. c) price must be lowered to induce firms to supply more of a product. d) it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

b) beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to: a) increase by approximately 12 percent. b) decrease by approximately 12 percent. c) decrease by approximately 32 percent. d) decrease by approximately 26 percent.

b) decrease by approximately 12 percent.

To economists, the main difference between the short run and the long run is that: a) the law of diminishing returns applies in the long run, but not in the short run. b) in the long run all resources are variable, while in the short run at least one resource is fixed. c) fixed costs are more important to decision making in the long run than they are in the short run. d) in the short run all resources are fixed, while in the long run all resources are variable.

b) in the long run all resources are variable, while in the short run at least one resource is fixed.

Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase: a) more of A and less of B. b) more of B and less of A. c) more of both A and B. d) less of both A and B.

b) more of B and less of A.

Which of the following is most likely to be an implicit cost for Company X? a) Forgone rent from the building owned and used by Company X. b) Rental payments on IBM equipment. c) Payments for raw materials purchased from Company Y. d) Transportation costs paid to a nearby trucking firm.

a) Forgone rent from the building owned and used by Company X.

In the long run: a) all costs are variable costs. b) all costs are fixed costs. c) variable costs equal fixed costs. d) fixed costs are greater than variable costs.

a) all costs are variable costs.

The theory of consumer behavior assumes that: a) consumers behave rationally, attempting to maximize their satisfaction. b) consumers have unlimited money incomes. c) consumers do not know how much marginal utility they obtain from successive units of various products. d) marginal utility is constant.

a) consumers behave rationally, attempting to maximize their satisfaction.

The price elasticity of demand of a straight-line demand curve is: a) elastic in high-price ranges and inelastic in low-price ranges. b) elastic but does not change at various points on the curve. c) inelastic but does not change at various points on the curve. d) 1 at all points on the curve.

a) elastic in high-price ranges and inelastic in low-price ranges.

Refer to the data. The marginal product of the fourth worker: a) is 5. b) is 7. c) is 71/2. d) cannot be calculated from the information given.

a) is 5.

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X 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 an inferior good. d) positive and therefore X is a normal good.

a) negative and therefore X is an inferior good.

Accounting profits equal total revenue minus: a) total explicit costs. b) total implicit costs. c) total economic costs. d) economic profits.

a) total explicit costs.

Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is: a) negative and therefore these goods are substitutes. b) negative and therefore these goods are complements. c) positive and therefore these goods are substitutes. d) positive and therefore these goods are complements.

b) negative and therefore these goods are complements.

Refer to the diagram. Constant returns to scale: a) occur over the 0Q1 range of output. b) occur over the Q1Q3 range of output. c) begin at output Q3. d) are in evidence at all output levels.

b) occur over the Q1Q3 range of output.

Total utility may be determined by: a) multiplying the marginal utility of the last unit consumed by the number of units consumed. b) summing the marginal utilities of each unit consumed. c) multiplying the marginal utility of the last unit consumed by product price. d) multiplying the marginal utility of the first unit consumed by the number of units consumed.

b) summing the marginal utilities of each unit consumed.

Refer to the data. When two workers are employed: a) total product is 20. b) total product is 18. c) average product is 10. d) total product cannot be determined from the information given.

b) total product is 18.

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is: a) 26 units of utility. b) 6 units of utility. c) 8 units of utility. d) 38 units of utility.

c) 8 units of utility.

Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that: a) the two commodities are substitute goods. b) Mrs. Arnold should spend more on pretzels and less on soda. c) Mrs. Arnold should spend more on soda and less on pretzels. d) Mrs. Arnold is buying soda and pretzels in the utility-maximizing amounts.

c) Mrs. Arnold should spend more on soda and less on pretzels.

Which of the following goods will least likely suffer a decline in demand during a recession? a) Dinner at a nice restaurant b) iPods c) Toothpaste d) Plasma screen and LCD TVs

c) Toothpaste

Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that: a) the long-run average total cost curve is up-sloping. b) a 10 percent increase in all inputs will increase output by less than 10 percent. c) a 10 percent increase in all inputs will increase output by more than 10 percent. d) the firm is encountering problems of managerial bureaucracy because of its size.

c) a 10 percent increase in all inputs will increase output by more than 10 percent.

A perfectly inelastic demand curve: a) has a price elasticity coefficient greater than unity. b)has a price elasticity coefficient of unity throughout. c) graphs as a line parallel to the vertical axis. d) graphs as a line parallel to the horizontal axis.

c) graphs as a line parallel to the vertical axis.

If the University Chamber Music Society decides to raise 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) inelastic. d) elastic.

c) inelastic

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. d) negative, indicating substitute goods.

c) positive, indicating substitute goods.

The demand schedules for such products as eggs, bread, and electricity tend to be: a) perfectly price elastic. b) of unit price elasticity. c) relatively price inelastic. d) relatively price elastic.

c) relatively price inelastic.

Refer to the diagram. This firm's average fixed costs are: a) not shown. b) the vertical distance between AVC and MC. c) the vertical distance between AVC and ATC. d) equal to the per unit change in MC.

c) the vertical distance between AVC and ATC.

Where total utility is at a maximum, marginal utility is: a) negative. b) positive and increasing. c) zero. d) positive but decreasing.

c) zero.

Refer to the data. The value for Y is: a) 25. b) 30. c) 40. d) 45.

d) 45.

If you operated a small bakery, which of the following would be a variable cost in the short run? a) Baking ovens. b) Interest on business loans. c) Annual lease payment for use of the building. d) Baking supplies (flour, salt, etc.).

d) Baking supplies (flour, salt, etc.).

Economic profits are calculated by subtracting: a) explicit costs from total revenue. b) implicit costs from total revenue. c) implicit costs from normal profits. d) explicit and implicit costs from total revenue.

d) explicit and implicit costs from total revenue.

The concept of price elasticity of demand measures: a) the slope of the demand curve. b) the number of buyers in a market. c) the extent to which the demand curve shifts as the result of a price decline. d) how responsive consumers are to changes in the product's price.

d) how responsive consumers are to changes in the product's price.

If price and total revenue vary in opposite directions, demand is: a) perfectly inelastic. b) perfectly elastic. c) relatively inelastic. d) relatively elastic.

d) relatively elastic.

The ability of a good or service to satisfy wants is called: a) utility maximization. b) opportunity cost. c) revenue potential. d) utility.

d) utility.