Microeconomics Exam
Which of the following statements best represents the principle represented by the adage, "there is no such thing as a free lunch"
d. Kendra must decide between going to Colorado or Cancun for spring break
Which of the following statements is not correct?
d. Private parties are usually more successful in achieving efficient outcomes than government policies
An externality exists whenever
d. a person engages in an activity that influences the well being of a bystander and yet neither pays nor receives payment for that effect
Which of the following represents a potential solution to the problems of environmental pollution?
d. all of the above
Antitrust laws allow the gov. to
d. all of the above are correct
Assume that Greece has a comparative advantage in fish...Germany comparative advantage in cars...
d. all of the above are correct
A legal maximum price at which a good can be sold is a price
d. ceiling
In a competitive market, a firms supply curve dictates the amount it will supply. in a monopoly market the
d. decision about how much to supply is impossible to separate from the demand curve it faces
Evidence of differences in average wages of women compared to men
d. does not provide conclusive evidence of discrimination
The distinction between efficiency and equity can be described as follows
d. efficiency refers to maximizing the size of the pie, equity refers to distributing the pie fairly among members of society
If a person only occasionally buys a cup of coffee, his demand for coffee is probably
d. elastic
Which of the following statements regarding a competitive firm is true?
d. for all firms, average revenue equals the price of the good
Adam Smith argued that in a market system, when people act in their own self-interest they typically
d. help others even more than when they deliberately try to help others
The marginal product of labor is equal to the
d. increase in output obtained from a one unit increase in labor
The marginal product of any input
d. is the increase in total output obtained from one additional unit of that output
Sometimes economists disagree because because their scientific judgments differ. Which of the following instances best reflects this source of disagreement?
d. one economist believes increases in the minimum wage increase unemployment, another economist believes increases in the minimum wage do not increase unemployment
You are the mayor of a small town with 2,000 residents....public concert...donations
d. residents of town were probably free-riders at the concert
The phenomenon of scarcity stems from the fact that
d. resources are limited
When a binding price ceiling is imposed to benefit buyers, a result is that
d. some buyers will not be able to buy any amount of the good
Market Failure is the inability of
d. some unregulated markets to allocate resources efficiently
Suppose that a decrease in the price of good X results in fewer units of good Y being sold. This implies that X and Y are
d. substitute goods
In a market economy
d. supply and demand determine prices and in turn prices allocate scarce resources
The discovery of a new hybrid wheat c=would increase the supply of wheat. As a result, wheat farmers would realize an increase in total revenue if
d. the demand for wheat is elastic
Figure 13-5: Curve A is U shaped because of
d. the fact that decreasing marginal product follows increasing marginal product
When a country allows trade and becomes an importer of steel
d. the gains of the domestic consumers of steel exceed the losses of the domestic producers of steel
A profit maximizing firm in a competitive market will always make marginal adjustments to production as long as
d. the price is above or below marginal cost
Which of the following would not be a determinant of the demand for a particular good?
d. the prices of the inputs used to produce the good
The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Wheat Farm maximizes its profit by choosing
d. the quantity at which market price is equal to the farm's marginal cost of production
When one person uses a common resource, such as fish in the ocean, which of the following would not be correct?
d. there will still be enough left for other people, since one person cannot make a major impact
An economy is being efficient if it is impossible to produce more of one good without producing less of another
True
By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit maximizing level of production
True
Diminishing marginal product exists when the production function becomes flatter as inputs increase
True
For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of another good
True
For competitive firms, the curve that represents the value of marginal product of labor (a.k.a MRP) is the same as the demand for labor curve
True
Free trade causes job losses in industries in which a country does not have a comparative advantage, but it also causes job gains in industries in which the country has a comparative advantage
True
Higher levels of human capital are correlated with higher earnings because firms are willing to pay more for better educated workers who have higher marginal productivities
True
If a country's domestic price of a good is lower than the world price, then that country has a comparative advantage in producing that good
True
If all taxpayers pay the same percentage of income in taxes, the tax system is proportional
True
If the price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent as a result, then the price elasticity of the demand is 3
True
In a market, the price of any good adjusts until quantity demanded equals quantity supplied
True
In the case of oligopoly markets, self interest prevents cooperation and leads to an inferior outcome for the firms that are involved
True
Lawmakers can decide whether the buyers or the sellers must send a tax to the government, but they cannot legislate the true burden of a tax
True
One reason why better-looking workers may have higher earnings is that physical attractiveness may enhance a worker's productivity for certain jobs, especially for those workers who deal with the public
True
Connie can clean windows in a large office building at a cost of $1 per window, the market price for window cleaning services is $3 per window, if connie cleans 100 windows, her producer surplus is $100
False
If a company making frozen orange juice expects the price of their product to be higher next month, it will supply more to the market this month
False
If a price ceiling of $2 per gallon is imposed on gasoline, and the market equilibrium price is $1.50, the price ceiling is a binding constraint on the market
False
If the demand for a good falls when income falls, the good is called an inferior good
False
In a simple circular flow diagram firms own the factors of production and use them to produce goods and services
False
The more inelastic are demand and supply, the greater is the deadweight loss of a tax
False
The most important revenue generating taxes for state and local governments are income taxes and property taxes
False
The rising gap in wages between unskilled and skilled workers is most likely related to a larger increase in demand for unskilled occupations relative to skilled cooperations
False
Total profit for all firms in an oligopolistic market is greater than that of a monopolist assuming no price fixing occurs in the market
False
Total surplus in a market can be measure as the are below the supply curve plus the area above the demand curve, up to the point of equilibrium
False
When a good is taxed, the tax revenue collected by the gov. equals the decrease in the welfare of buyers and sellers caused by the tax
False
When an individual firm in a competitive market increases its production, it is likely that the market price will fall
False
When economists speak of a firms costs,they are excluding opportunity cost
False
With careful planning, we can usually get something that we like without having to give up something else that we like
False
Politicians often point to wage differentials as evidence of labor market discrimination against ethnic minorities and women; however economists argue against this approach because people differ in the kinds of work they are willing and able to do
True
Private parties may choose not to solve an externality problem if the transaction costs are large enough
True
Product differentiation always leads to some measure of market power
True
Profit maximizing competitive firms will not discriminate in the hiring of workers unless consumers exercise a preference for discrimination in product markets or governments mandate discrimination
True
Rent control may lead to lower rents for those who find housing, but the quality of the housing may also be ower
True
Roads can be considered either public goods or common resources, depending on how congested they are
True
The amount of power that a monopoly has depends on whether there are close substitutes for its product
True
The government can potentially improve market outcomes if market imperfections exist
True
The marginal firm in a competitive market will earn zero economic profit in the long run
True
The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in the market will raise tax revenue
True
The most important revenue generating taxes for the federal gov. are individual income taxes and payroll taxes for social insurance
True
The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution
True
The sum of a consumer and producer surplus measures the total benefits that buyers and sellers receive from participating in a market
True
The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are
True
Trade allows a country to consume outside its production possibilities frontier
True
Trade allows each person to specialize in the activities he or she does best, thus increasing each individuals productivity
True
University financial aid can be viewed as a type of price discrimination
True
When markets fail, public policy can potentially remedy the problem and increase economic efficiency
True
Hot dog vendors on the beach fail to cooperate....
a. (i) and (ii)
XYZ corporation produced 300 units of output but sold only 275 of the units produced....
a. -3,875
Mike and Bob are both in the same enclosed hotel room...mike smoking cigar....bob smoke free air
a. Mike pays Bob $11 so that Mike can smoke his cigar
What will happen to the equilibrium price and quantity of traditional camera film if digital cameras become cheaper, the cost of the resources needed to manufacture traditional film falls and more firms decide to manufacture traditional film.
a. Price will fall and the effect on quantity is ambiguous
Which of the following is an example of a positive statement?
a. Prices rise when the government prints too much money
Which of the following statements is correct?
a. Private goods are rival in consumption and excludable
Four friends who love to ski decide to pool their financial resources....Alta, Utah.. dishes in sink...
a. a common resource problem
If a surplus exists in a market we know that the actual price is
a. above the equilibrium price and quantity supplied is greater than quantity demanded
Which of the following is most likely to raise the average material standard of living in the US?
a. an increase in investment in new capital
Regan grows flowers and makes ceramic vases. Jayson also grows flowers and makes vases, but Regan is better at producing both. In this case trade could...
a. benefit both Jayson and Regan
When a good is taxed
a. both buyers and sellers of the good are made worse off
WHen something of value has no price attached to it
a. externalities will be present
Aquilonia has decided to end policy of not trading....incense, steel, rugs...
a. higher in the steel market, lower in the incense market and unchanged in the rug market
In markets for the factors of production
a. households are sellers and firms are buyers
Entry into a market by new firms will
a. increase the supply of the good
Rate these taxes as sources of revenue to the federal gov from most to least important
a. individual income taxes, social insurance taxes, corporate income taxes
In a competitive market, no single producer can influence the market price because
a. many other sellers are offering a product that is essentially idential
The cost of producing an additional unit of output is the firms
a. marginal cost
In a competitive market with free entry and exit, the process of entry and exit ends when, for the typical firm in the market
a. marginal revenue is equal to long-run average total cost
The supply of a good is negatively related to the
a. price of inputs used to make the good
A tax on the sellers of cell phones will
a. reduce the size of the cell phone market
Explicit costs
a. require an outlay of money by the firm
Suppose the US has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that
a. the US should produce more pork than what it requires and export some of it to Mexico
Producer surplus measures
a. the benefits to sellers of participating in a market
If a country allows trade and for a certain good, the domestic price without trade is lower than the world price
a. the country will be an exporter of the good
When a market experiences a positive externality
a. the demand curve does not reflect the value to society of the good
Consider the market for capital equipment Suppose the value of the marginal product of capital equipment increases. Holding all else constant, what will happen to the equilibrium price of capital equipment
a. the equilibrium price of capital equipment increases
In an economy in which decisions are guided by prices and individual self interest, there is
a. the potential to achieve efficiency in production
The Laffer Curve relates
a. the tax rate to tax revenue raised by the tax
Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together
a. they are unable to maintain the same degree of monopoly power enjoyed by a monopolist
The demand for a good or service is determined by
a. those who buy the good or service
Adam Smith asserted that a person should never attempt to make at home
a. what it will cost him more to make than to buy
Scenario 13-3: Tony's economic profit equals
b. $-80
Noah drinks Dr. Pepper....
b. $0.85
Table 13-5: average variable cost of producing four widgets is
b. $2.50
Ford Motor Company announces that it will off $3,000 rebates on new Mustangs starting next month, As a result of this information todays demand curve for Mustangs
b. shifts to the left
For a good that is a luxury, demand
b. tends to be elastic
A key determinant of the price elasticity of supply is
b. the ability of sellers to change the amount of the good they produce
Suppose the tax on gasoline is raised from$0.50 per gallon to $2.50 per gallon, as a result
b. the deadweight loss of the tax necessarily increases
Consider labor market for computer programmers.....dot.com boom....
b. the equilibrium wage decreased
When we compare an increase in supply with an increase in quantity supplied weknow that
b. the former could be caused by a decrease in input costs and the latter would be caused by an increase in the price of the good
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
b. the nation is not using all available resources or is using inferior technology or both
Suppose Haiti has a comparative advantage...sugar...
b. will export sugar
The labor supply curve is fundamentally a representation of the trade off people face between which of the following?
b. work and leisure
Table 12-2: Surbhi is a single person whose taxable income is $150,000 a year. What is her total tax due in 2003?
c. $39, 553
Dave is the owner of Dave's Pizza.....
c. $5
In the signaling theory of education (three options)
c. (iii) only
For which of the following goods would demand be most elastic
c. Abercrombie & Fitch jeans
If the US decides to trade with Mexico
c. Mexico and the US are can both benefit
Figure 8-2: the per-unit burden of the tax on sellers is
c. P2-P1
Figure 8-2: the price that buyers effectively pay after the tax is imposed is
c. P3
Which of the following statements is correct
c. When African elephants were privatized, the survival of the species improved
Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with
c. a signal of product quality
Marginal cost tells us the
c. amount by which total cost rises when output is increased by one unit
When policy makers set prices by legal decree, they
c. are obscuring the signals that normally guide the allocation of society's resources
Whenever marginal cost is greater than average total cost
c. average total cost if rising
As a group, oligopolists would always earn the highest profit if they would
c. charge the same price that a monopolist would charge if the market were a monopoly
To fully understand how taxes affect economic well being, we must
c. compare the reduced welfare of buyers and sellers to the amount of revenue the government raises
John owns a shoe-shine business, his accountant most likely includes which of the following costs on his financial statements
c. cost of shoe polich
Holding all other things constant, a higher price for ski lift tickets would
c. decrease the number of skies sold
Figure 9-5: the imposition of a tariff on carnations
c. decreases the number of carnations imported by 200
Because a firm's demand for a factor of production is derived from its decision to supply a good in the market, it is called a
c. derived demand
A profit maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market
c. faces a downward sloping demand curve for its product
If the Japanese steel industry subsidizes the steel that it sells to the US, the
c. harm done to US steel producers is less than the benefit that accrues to US consumers of steel
If he devotes all of his available resources to cantaloupe production ...120 cantaloupes....sacrifices 1.5 watermelons...
c. his opportunity cost of one watermelon is 2/3 of a cantaloupe
To mos economists, the best solution to the overcrowding problems at Yellowstone National Park
c. increase entrance fees to the park
The deadweight loss from a tax
c. is larger, the larger is the amount of tax per unit
A furniture maker currently produces 100 tables per week and sells them for a profit..considering expanding...
c. it depends on the marginal cost of producing more table and the marginal revenue she will earn from selling more tables
Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of
c. lemonade mix
When her income increased from $10,000 to $20,000, Heathers consumption of macaroni decreased from 10 pounds to 5...soy burgers increased from 2 pounds to 4
c. macaroni is an inferior good with an income elasticity of -1 and soy burgers are normal goods with an income elasticity of 1
A profit maximizing monopolist will produce the level of output at which
c. marginal revenue = marginal cost
Firms in industries that have competitors but at the same time do not face so much competition that they are price takers are operating in either a(n)
c. oligopoly or monopolistically competitive market
Diminishing marginal product suggests that the marginal
c. product of an extra worker is less than the previous workers marginal product
Other things equal, when the price of a good rises, the
c. quantity supplied of the good increases
When the nation of Econoland allows trade and becomes an exporter of televisions
c. residents of Econoland who produce televisions become better off, residents of Econoland who buy televisions become worse off, and the economic well being of Econoland rises
To say that a price ceiling is binding is to say that the price ceiling
c. results in excess quantity demand
Suppose that smoking creates a negative externality. If the gov imposes a per cigarette tax equal to per cigarette externality then
c. the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked
Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other things equal,
c. the larger is the deadweight loss of the tax
Demand is said to be inelastic if
c. the quantity demanded changes only slightly when the price of the good changes
Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden when
c. the supply of the product is more elastic than the demand for the product
We can say that the allocation of resources is efficient if
c. total surplus is maximized
Figure 9-5: the size of the tariff on carnations is
d. $2 per dozen
Scenario 13-3: what is the total opportunity cost of the day that Farmer Tony incurred for his spring day in the field planting whet
d. $380
Table 13-5: marginal cost of producing sixth widget is
d. $6.00
A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies
d. All of the above
For a competitive firm
d. Average revenue= Marginal revenue
A competitive market will typically experience entry and exit until accounting profits are zero
False
An increase in the price of pizza will shift the demand curve for pizza to the left
False
A total-cost curve shows the relationship between the
b. quantity of output produced and the total cost of production
A vacation house in Colorado is
b. rival in consumption and excludable
When the local used bookstore prices at $15.00...
C. 0.34 and an increase in price from $7 to $15 results in an increase in total revenue
The amount of money that a firm receives from the sale of its output is called
C. total revenue
Table 12-2: Surbhi is a single person whose taxable income is $150,000 a year. What is her total tax due in 2002?
b. $41,679.50
Figure 13-5: three options
b. (ii) and (iii)
If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is
b. 0.5 and supply is inelastic
Figure 8-2: the amount of deadweight loss associated with the tax is equal to
b. ABC
Why is the commercial value of ivory a threat to the elephant, while the commercial value of beef is the cow's guardian?
b. Elephants are a common resource
John is an Asian 23 year old...Ken is an Asian 43....
b. John has less human capital relative to Ken
Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized mutually beneficial trades are
b. a deadweight loss to society
Trade can make everybody better off because it
b. allows people to specialize according to comparative advantage
To say that the quantity demanded of a good is negatively related to the price of the good is to say that
b. an increase in the price of the good leads to a decrease in the quantity demanded of the good
When a tax is placed on the buyers of product, a result is that, relative to the pre-tax situation
b. buyers pay more and sellers receive less
In theory, perfect price discrimination
b. decreases consumer surplus
Taxes on specific goods such as cigarettes, gasoline, and alcoholic beverages are called
b. excise taxes
Patent and copyright laws are major sources of
b. government created monopolies
Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will
b. increase, and producer surplus in the industry will increase
Consumer Surplus
b. is the difference between the amount that a consumer actually pays for a good and the amount that the consumer is willing to pay for the good
The U.S. patent system
b. makes specific, technical knowledge excludable
A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
b. maximizes the combined welfare of buyers and sellers
Figure 13-3: in this diagram, the shift in the total product curve represents an increase in the firm's
b. productivity
When the gov intervenes in markets with externalities, it does so in order to
b. protect the interests of bystanders
Which of the following is the most accurate statement?
b. protection is not necessary for an industry to grow