Microeconomics Final Exam

A pizza is A. excludable and rival in consumption. B. excludable and nonrival in consumption. C. nonexcludable and rival in consumption. D. nonexcludable and nonrival in consumption.

. excludable and rival in consumption.

Whether a good is a luxury or necessity depends on the A. price of the good. B. preferences of the buyer. C. intrinsic properties of the good. D. scarcity of the good.

B. preferences of the buyer.

Which of the following statements is correct? A. Buyers always want to pay less and sellers always want to be paid more. B. Buyers always want to pay less and sellers always want to be paid less. C. Buyers always want to pay more and sellers always want to be paid more. D. Buyers always want to pay more and sellers always want to be paid less.

A. Buyers always want to pay less and sellers always want to be paid more.

Suppose an economist develops a theory that higher food prices arise from higher gas prices. According to the scientific method, which of the following is the economist's next step? A. Collect and analyze data. B. Go to a laboratory and generate data to test the theory. C. Publish the theory without testing it. D. Consult with other economists to see they agree with the theory.

A. Collect and analyze data.

Which of the following is a principle concerning how people interact? A. Markets are usually a good way to organize economic activity. B. Rational people think at the margin. C. People respond to incentives. D. Answered All of the above are correct.

A. Markets are usually a good way to organize economic activity.

With which of the Ten Principles of Economics is the study of international trade most closely connected? A. Trade can make everyone better off. B. Governments can sometimes improve market outcomes. C. Prices rise when the government prints too much money. D. People face tradeoffs.

A. Trade can make everyone better off.

Consumer surplus is equal to the A. Value to buyers - Amount paid by buyers. B. Amount paid by buyers - Costs of sellers. C. Value to buyers - Costs of sellers. D. Value to buyers - Willingness to pay of buyers.

A. Value to buyers - Amount paid by buyers.

A negative externality arises when a person engages in an activity that has A. an adverse effect on a bystander who is not compensated by the person who causes the effect. B. an adverse effect on a bystander who is compensated by the person who causes the effect. C. a beneficial effect on a bystander who pays the person who causes the effect. D. a beneficial effect on a bystander who does not pay the person who causes the effect.

A. an adverse effect on a bystander who is not compensated by the person who causes the effect.

In a market economy, supply and demand determine A. both the quantity of each good produced and the price at which it is sold. B. the quantity of each good produced but not the price at which it is sold. C. the price at which each good is sold but not the quantity of each good produced. D. neither the quantity of each good produced nor the price at which it is sold.

A. both the quantity of each good produced and the price at which it is sold.

The demand for grape-flavored Hubba Bubba bubble gum is likely A. elastic because there are many close substitutes for grape-flavored Hubba Bubba. B. inelastic because there are many close substitutes for grape-flavored Hubba Bubba . C. elastic because the market is broadly defined. D. inelastic because the market is broadly defined.

A. elastic because there are many close substitutes for grape-flavored Hubba Bubba.

A statement describing how the world should be A. is a normative statement. B. is a positive statement. C. would only be made by an economist speaking as a scientist. D. would only be made by an economist employed by the government.

A. is a normative statement.

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by A. making it illegal to "disturb the peace." B. having a well-funded animal control department. C. subsidizing local animal shelters. D. encouraging people to adopt cats.

A. making it illegal to "disturb the peace."

Willingness to pay A. measures the value that a buyer places on a good. B. is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. C. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. D. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

A. measures the value that a buyer places on a good.

The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in A. performing an experiment in an economic system. B. applying mathematical methods to economic analysis. C. analyzing available data. D. formulating theories about economic events.

A. performing an experiment in an economic system.

When consumers face rising gasoline prices, they typically A. reduce their quantity demanded more in the long run than in the short run. B. do not reduce their quantity demanded in the short run or the long run. C. reduce their quantity demanded more in the short run than in the long run. D. increase their quantity demanded in the short run but reduce their quantity demanded in the long run.

A. reduce their quantity demanded more in the long run than in the short run.

Economists normally assume people's preferences should be A. respected. B. adjusted. C. overruled. D. ignored.

A. respected.

When a society cannot produce all the goods and services people wish to have, the economy is experiencing A. scarcity. B. surpluses. C. inefficiencies. D. inequalities.

A. scarcity.

Cost is a measure of the A. seller's willingness to sell. B. seller's producer surplus. C. producer shortage. D. seller's willingness to buy.

A. seller's willingness to sell.

Externalities are A. side effects passed on to a party other than the buyers and sellers in the market. B. side effects of government intervention in markets. C. external forces that cause the price of a good to be higher than it otherwise would be. D. external forces that help establish equilibrium price.

A. side effects passed on to a party other than the buyers and sellers in the market.

In markets, prices move toward equilibrium because of A. the actions of buyers and sellers. B. government regulations placed on market participants. C. increased competition among sellers. D. buyers' ability to affect market outcomes.

A. the actions of buyers and sellers.

Welfare economics is the study of how A. the allocation of resources affects economic well-being. B. a price ceiling compares to a price floor. C. the government helps poor people. D. a consumer's optimal choice affects her demand curve.

A. the allocation of resources affects economic well-being.

Consumer surplus is A. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. B. the amount a buyer is willing to pay for a good minus the cost of producing the good. C. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. D. a buyer's willingness to pay for a good plus the price of the good.

A. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

The demand for a good or service is determined by A. those who buy the good or service. B. the government. C. those who sell the good or service. D. both those who buy and those who sell the good or service.

A. those who buy the good or service.

A seller's opportunity cost measures the A. value of everything she must give up to produce a good. B. amount she is paid for a good minus her cost of providing it. C. consumer surplus. D. out of pocket expenses to produce a good but not the value of her time.

A. value of everything she must give up to produce a good.

Consumer surplus equals the A. value to buyers minus the amount paid by buyers. B. value to buyers minus the cost to sellers. C. amount received by sellers minus the cost to sellers. D. amount received by sellers minus the amount paid by buyers.

A. value to buyers minus the amount paid by buyers.

Suppose the government imposes a tax in a certain market in order to internalize an externality. This type of policy is based on which of the Ten Principles of Economics? A. People face trade-offs. B. People respond to incentives. C. Markets are usually a good way to organize economic activity. D. The cost of something is what you give up to get it.

B. People respond to incentives.

The tax on cigarettes is an example of A. a consumption tax. B. a corrective tax. C. an income tax. D. a command-and-control policy.

B. a corrective tax.

Which of the following will cause an increase in consumer surplus? A. an increase in the production cost of the good B. a technological improvement in the production of the good C. a decrease in the number of sellers of the good D. the imposition of a binding price floor in the market

B. a technological improvement in the production of the good

Economic models A. are not useful because they omit many real-world details. B. are usually composed of diagrams and equations. C. are useful because they do not omit any real-world details. D. are usually plastic representations of the economy.

B. are usually composed of diagrams and equations.

Emission controls on automobiles are an example of a A. corrective tax. B. command-and-control policy to increase social efficiency. C. policy that reduces pollution by allocating resources through market mechanisms. D. policy to reduce congestion on urban freeways.

B. command-and-control policy to increase social efficiency.

Which tools allow economists to determine if the allocation of resources determined by free markets is desirable? A. profits and costs to firms B. consumer and producer surplus C. the equilibrium price and quantity D. incomes of and prices paid by buyers

B. consumer and producer surplus

For a good that is a necessity, A. All of the above are correct. B. demand tends to be inelastic. C. the law of demand does not apply. D. quantity demanded tends to respond substantially to a change in price.

B. demand tends to be inelastic.

Market failure can be caused by A. too much competition. B. externalities. C. low consumer demand. D. scarcity.

B. externalities.

By definition, exports are A. limits placed on the quantity of goods brought into a country. B. goods produced domestically and sold abroad. C. goods in which a country has an absolute advantage. D. people who work in foreign countries.

B. goods produced domestically and sold abroad.

In general, elasticity is a measure of A. the extent to which a market is competitive. B. how much buyers and sellers respond to changes in market conditions. C. how firms' profits respond to changes in market prices. D. the extent to which advances in technology are adopted by producers.

B. how much buyers and sellers respond to changes in market conditions.

A statement describing how the world is A. is a normative statement. B. is a positive statement. C. would only be made by an economist speaking as a policy adviser. D. would only be made by an economist employed by the government.

B. is a positive statement.

A positive externality will cause a market to produce A. more than is socially desirable. B. less than is socially desirable. C. the socially optimal equilibrium amount. D. more than the same market would produce in the presence of a negative externality.

B. less than is socially desirable.

Technology spillover is one type of A. negative externality. B. positive externality. C. subsidy. D. producer surplus.

B. positive externality.

When markets fail, public policy can A. do nothing to improve the situation. B. potentially remedy the problem and increase economic efficiency. C. always remedy the problem and increase economic efficiency. D. in theory, remedy the problem, but in practice, public policy has proven to be ineffective.

B. potentially remedy the problem and increase economic efficiency.

A free rider is a person who A. will only purchase a product on sale. B. receives the benefit of a good but avoids paying for it. C. can produce a good at no cost. D. rides public transit regularly.

B. receives the benefit of a good but avoids paying for it.

The smaller the price elasticity of demand, the A. more likely the product is a luxury. B. smaller the responsiveness of quantity demanded to a change in price. C. greater the responsiveness of quantity demanded to a change in price. D. more substitutes the product has.

B. smaller the responsiveness of quantity demanded to a change in price.

The production possibilities frontier illustrates A. All of the above are correct. B. the combinations of output that an economy can produce. C. the combinations of output that an economy should produce. D. the combinations of output that an economy should consume.

B. the combinations of output that an economy can produce.

Efficiency in a market is achieved when A. a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. B. the sum of producer surplus and consumer surplus is maximized. C. all firms are producing the good at the same low cost per unit. D. no buyer is willing to pay more than the equilibrium price for any unit of the good.

B. the sum of producer surplus and consumer surplus is maximized.

A production possibilities frontier can shift outward if A. government increases the amount of money in the economy. B. there is a technological improvement. C. resources are shifted from the production of one good to the production of the other good. D. the economy abandons inefficient production methods in favor of efficient production methods.

B. there is a technological improvement.

A key determinant of the price elasticity of supply is the A. income of consumers. B. time horizon. C. price elasticity of demand. D. importance of the good in a consumer's budget.

B. time horizon.

In the absence of externalities, the "invisible hand" leads a market to maximize A. producer profit from that market. B. total benefit to society from that market. C. both equality and efficiency in that market. D. output of goods or services in that market.

B. total benefit to society from that market.

In markets, the invisible hand allocates resources efficiently A. in all cases. B. when the buyers and sellers are the only interested parties. C. when there are positive externalities, but not when there are negative externalities. D. when there are negative externalities, but not when there are positive externalities.

B. when the buyers and sellers are the only interested parties.

The Coase theorem suggests that private solutions to an externality problem A. are effective under all conditions. B. will usually allocate resources efficiently if private parties can bargain without cost. C. are only efficient when there are negative externalities. D. may not be possible because of the distribution of property rights.

B. will usually allocate resources efficiently if private parties can bargain without cost.

The quantity demanded of a good is the amount that buyers are A. willing to purchase. B. willing and able to purchase. C. willing, able, and need to purchase. D. able to purchase.

B. willing and able to purchase.

The maximum price that a buyer will pay for a good is called A. consumer surplus. B. willingness to pay. C. equilibrium. D. efficiency.

B. willingness to pay.

Which of the following is not an example of the principle that trade can make everyone better off? A. Residents of Maine drink orange juice from Florida. B. Americans buy tube socks from China. C. All of the above are examples of the principle that trade can make everyone better off. D. A homeowner hires the kid next door to mow the lawn.

C. All of the above are examples of the principle that trade can make everyone better off.

A city street is A. always a public good, whether or not it is congested. B. a public good when it is congested, but it is a common resource when it is not congested. C. a common resource when it is congested, but it is a public good when it is not congested. D. always a common resource, whether or not it is congested.

C. a common resource when it is congested, but it is a public good when it is not congested.

Market power refers to the A. side effects that may occur in a market. B. government regulations imposed on the sellers in a market. C. ability of market participants to influence price. D. forces of supply and demand in determining equilibrium price.

C. ability of market participants to influence price.

Producer surplus equals the A. value to buyers minus the amount paid by buyers. B. value to buyers minus the cost to sellers. C. amount received by sellers minus the cost to sellers. D. amount received by sellers minus the amount paid by buyers.

C. amount received by sellers minus the cost to sellers.

A market includes A. buyers only. B. sellers only. C. both buyers and sellers. D. the place where transactions occur but not the people involved.

C. both buyers and sellers.

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to A. only existing sellers who now receive higher prices on the pizzas they were already selling. B. only new sellers who enter the market because of the higher prices. C. both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices. D. Producer surplus does not increase; it decreases.

C. both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.

An externality arises when a person engages in an activity that influences the well-being of A. buyers in the market for that activity and yet neither pays nor receives any compensation for that effect. B. sellers in the market for that activity and yet neither pays nor receives any compensation for that effect. C. bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect. D. Both (a) and (b) are correct.

C. bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.

In a market economy, supply and demand are important because they A. are direct policy tools used by government agencies to regulate the economy. B. illustrate when an market is in equilibrium, but they are not helpful when a market is out of equilibrium. C. can be used to predict the impact on the economy of various events and policies. D. All of the above are correct.

C. can be used to predict the impact on the economy of various events and policies.

Which of the following is likely to have the most price inelastic demand? A. Mrs. Field's chocolate chip cookies B. milk chocolate chip cookies C. cookies D. white chocolate chip with macadamia nut cookies

C. cookies

Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his A. producer surplus. B. producer deficit. C. cost of building fences. D. profit.

C. cost of building fences.

Private markets fail to account for externalities because A. externalities don't occur in private markets. B. sellers include costs associated with externalities in the price of their product. C. decisionmakers in the market fail to include the costs of their behavior to third parties. D. the government cannot easily estimate the optimal quantity of pollution.

C. decisionmakers in the market fail to include the costs of their behavior to third parties.

Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to A. increase the total revenue of wheat farmers. B. decrease the demand for wheat. C. decrease the total revenue of wheat farmers. D. decrease the supply of wheat.

C. decrease the total revenue of wheat farmers.

The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an increase in total revenue if the A. demand for wheat is inelastic. B. supply of wheat is elastic. C. demand for wheat is elastic. D. supply of wheat is inelastic.

C. demand for wheat is elastic.

In building economic models, economists often omit A. assumptions. B. theories. C. details. D. equations.

C. details.

Farm programs that pay farmers not to plant crops on all their land A. help farmers by cutting costs, which helps consumers by lowering food prices. B. help farmers directly since they receive government payments but have no real effects on consumers. C. help farmers by increasing total revenue in the market but hurt consumers by raising food prices. D. hurt farmers by lowering their total revenue and hurt consumers by causing shortages of some food items.

C. help farmers by increasing total revenue in the market but hurt consumers by raising food prices.

A consumer's willingness to pay directly measures A. the extent to which advertising and other external forces have influenced the consumer's preferences. B. the cost of a good to the buyer. C. how much a buyer values a good. D. consumer surplus.

C. how much a buyer values a good.

Economists build economic models by A. generating data. B. conducting controlled experiments in a lab. C. making assumptions. D. reviewing statistical forecasts.

C. making assumptions.

Goods with many close substitutes tend to have A. price elasticities of demand that are unit elastic. B. less elastic demands. C. more elastic demands. D. income elasticities of demand that are negative.

C. more elastic demands.

The adage, "There is no such thing as a free lunch," means A. even people on welfare have to pay for food. B. the cost of living is always increasing. C. people face trade-offs. D. all costs are included in the price of a product.

C. people face trade-offs.

Producer surplus is A. measured using the demand curve for a good. B. always a negative number for sellers in a competitive market. C. the amount a seller is paid minus the cost of production. D. the opportunity cost of production minus the cost of producing goods that go unsold.

C. the amount a seller is paid minus the cost of production.

If a sawmill creates too much noise for local residents, A. noise restrictions will force residents to move out of the area. B. a sense of social responsibility will cause owners of the mill to reduce noise levels. C. the government can raise economic well-being through noise-control regulations. D. the government should avoid intervening because the market will allocate resources efficiently.

C. the government can raise economic well-being through noise-control regulations.

The price elasticity of supply measures how much A. the quantity supplied responds to changes in input prices. B. sellers respond to changes in technology. C. the quantity supplied responds to changes in the price of the good. D. the price of the good responds to changes in supply.

C. the quantity supplied responds to changes in the price of the good.

The supply of a good or service is determined by A. those who buy the good or service. B. the government. C. those who sell the good or service. D. both those who buy and those who sell the good or service.

C. those who sell the good or service.

We can say that the allocation of resources is efficient if A. producer surplus is maximized. B. consumer surplus is maximized. C. total surplus is maximized. D. sellers' costs are minimized.

C. total surplus is maximized.

Economists typically measure efficiency using A. the price paid by buyers. B. the quantity supplied by sellers. C. total surplus. D. profits to firms.

C. total surplus.

Which of the following is a subject that economists study? A. the growth in average income B. the fraction of the population that cannot find work C. the rate at which prices are rising D. All of the above are correct.

D. All of the above are correct.

Which of the following is an example of an externality? A. cigarette smoke that permeates an entire restaurant B. a flu shot that prevents a student from transmitting the virus to her roommate C. a beautiful flower garden outside of the local post office D. All of the above are correct.

D. All of the above are correct.

Which of the following products would be considered scarce? A. bread B. baseballs autographed by Babe Ruth C. motorcycles D. All of the above are correct.

D. All of the above are correct.

Which of the following is an example of a market? A. a gas station B. a garage sale C. a barber shop D. All of the above are examples of markets.

D. All of the above are examples of markets.

A circular-flow diagram is a model that A. helps to explain how participants in the economy interact with one another. B. helps to explain how the economy is organized. C. incorporates all aspects of the real economy. D. Both (a) and (b) are correct.

D. Both (a) and (b) are correct.

Which of the following statements is not correct? A. Private markets tend to over-produce products with negative externalities. B. Private markets tend to under-produce products with positive externalities. C. Private parties can bargain to efficient outcomes even in the presence of externalities. D. Private parties are usually more successful in achieving efficient outcomes than government policies in the presence of externalities.

D. Private parties are usually more successful in achieving efficient outcomes than government policies in the presence of externalities.

Which of the following statements is not correct? A. An invisible hand leads buyers and sellers to an equilibrium that maximizes total surplus. B. Market power can cause markets to be inefficient. C. Externalities can cause markets to be inefficient. D. The invisible hand can remedy all types of market failures.

D. The invisible hand can remedy all types of market failures.

A positive externality arises when a person engages in an activity that has A. an adverse effect on a bystander who is not compensated by the person who causes the effect. B. an adverse effect on a bystander who is compensated by the person who causes the effect. C. a beneficial effect on a bystander who pays the person who causes the effect. D. a beneficial effect on a bystander who does not pay the person who causes the effect.

D. a beneficial effect on a bystander who does not pay the person who causes the effect.

A toll on a congested road is in essence A. an interstate highway tax. B. a Department of Motor Vehicles tax. C. a gasoline tax. D. a corrective tax.

D. a corrective tax.

A patent is used to A. disseminate information. B. offset the negative effects of taxes. C. protect inventors for as long as they live. D. assign property rights.

D. assign property rights.

An increase in the price of a good will A. increase demand. B. decrease demand. C. increase quantity demanded. D. decrease quantity demanded.

D. decrease quantity demanded.

A decrease in the price of a good will A. increase supply. B. decrease supply. C. increase quantity supplied. D. decrease quantity supplied.

D. decrease quantity supplied.

The unique point at which the supply and demand curves intersect is called A. market harmony. B. coincidence. C. equivalence. D. equilibrium.

D. equilibrium.

By definition, imports are A. goods in which a country has an absolute advantage. B. limits placed on the quantity of goods leaving a country. C. people who work in foreign countries. D. goods produced abroad and sold domestically.

D. goods produced abroad and sold domestically.

Externalities can be corrected by each of the following except A. self-interest. B. moral codes and social sanctions. C. charity. D. normal market adjustments.

D. normal market adjustments.

The signals that guide the allocation of resources in a market economy are A. surpluses and shortages. B. quantities. C. government policies. D. prices.

D. prices.

A streetlight is a A. private good. B. club good. C. common resource. D. public good.

D. public good.

The price elasticity of demand measures how much A. price responds to a change in demand. B. quantity demanded responds to a change in income. C. demand responds to a change in supply. D. quantity demanded responds to a change in price.

D. quantity demanded responds to a change in price.

The quantity supplied of a good is the amount that A. buyers are willing and able to purchase. B. sellers are able to produce. C. buyers and sellers agree will be brought to market. D. sellers are willing and able to sell.

D. sellers are willing and able to sell.

In the case of a technology spillover, the government can encourage firms to internalize a positive externality by A. taxing production, which would decrease supply. B. taxing production, which would increase supply. C. subsidizing production, which would decrease supply. D. subsidizing production, which would increase supply.

D. subsidizing production, which would increase supply.

If the quantity supplied responds only slightly to changes in price, then A. an increase in price will not shift the supply curve very much. B. supply is said to be elastic. C. even a large decrease in demand will change the equilibrium price only slightly. D. supply is said to be inelastic.

D. supply is said to be inelastic.

Which of the following would likely be studied by a macroeconomist rather than a microeconomist? A. the effect of an increase in the alcohol tax on the market for beer B. the effect of foreign competition on the domestic auto industry C. the effect of a price war in the airline industry D. the effect of an increase in the minimum wage on an economy's overall rate of unemployment

D. the effect of an increase in the minimum wage on an economy's overall rate of unemployment

A logical starting point from which the study of international trade begins is A. the recognition that government intervention in markets sometimes enhances the economic welfare of the society. B. the recognition that not all markets are competitive. C. the principle of absolute advantage. D. the principle of comparative advantage.

D. the principle of comparative advantage.

Trade enhances the economic well-being of a nation in the sense that A. trade puts downward pressure on the prices of all goods. B. the gains of domestic producers of a good exceed the losses of domestic consumers of a good, regardless of whether the nation imports or exports the good in question. C. both domestic producers and domestic consumers of a good become better off with trade, regardless of whether the nation imports or exports the good in question. D. trade results in an increase in total surplus.

D. trade results in an increase in total surplus.

The study of how the allocation of resources affects economic well-being is called A. consumer economics. B. macroeconomics. C. willingness-to-pay economics. D. welfare economics.

D. welfare economics.