MicroEconomics Final

An unregulated natural monopolist would produce to the point at which:

MR = MC.

During what decade were U.S. poverty thresholds developed?

the 1960s

Based on this table, the opportunity cost of one kilogram of coffee in Kenya is:

0.33 kilograms of cocoa.

Which statement BEST illustrates increasing opportunity costs?

As more rice is produced, rice farmers plant in land that is good for growing other crops but poor for growing rice

Why does America use heavy street-cleaning machines driven by one person to clean the streets, while China and India use many people with brooms to do the same job?

China and India have greater labor forces than the United States and the United States has more capital resources available to it than China or India does. China and India have a huge labor resource relative to available capital; therefore the job is done with a lot of labor and with little capital. The United States has less labor relative to capital, thus wages are higher, and capital is substituted for labor.

When demand for a product falls, ceteris paribus, what happens to equilibrium price and consumer surplus at that price?

Equilibrium price falls and consumer surplus falls.

A portion of a network good's demand curve slopes downward, due to lower production costs.

False

Diminishing returns cannot occur if additional workers are as skilled as previously hired workers and have a good work ethic.

False

Which statement(s) is(are) true? I. A major source of income inequality in the United States stems from differences in education levels. II. Differences in the number of earners in a household is not a source of income inequality in the United States. III. Differences in spending habits is a major factor in explaining income inequality.

I only

Which of these statements is(are) true? I. In the United States, the households in the highest quintile of the income distribution tend to live inside a large city and have two or more earner(s) in the household. II. In the United States, the households in the lowest quintile of the income distribution tend to live inside a large city and have no earners in the household. III. Differences in spending habits is a major factor in explaining income inequality.

II only

Which of the following is true regarding a household's budget line?

It reflects the reality of a limited ability to consume.

Suppose that the United States and Italy are considering trade in two products: grain and oranges. The United States can produce 800 million bushels of grain or 200 million bushels of oranges, while Italy can produce 200 million bushels of grain or 100 million bushels of oranges. Which statement regarding comparative advantage is true?

Italy has a comparative advantage in producing oranges only.

Which of these shows characteristics of a perfectly competitive firm?

JorDawn cannot tell which farm the peaches he purchased came from because all the peaches look alike.

Which of these is an example of consumers creating a negative externality?

Litter is found in an area around a fast-food restaurant.

Ian owned his own dry cleaning shop, but he later sold it to his cousin Norman. Norman incorporated the business and is the only stockholder. Which of these is the MOST likely reason for the incorporation?

Norman wanted to have limited liability.

The current equilibrium price and quantity in the market for walnuts are $5 per pound with 10,000 pounds supplied. Supermarkets are expecting to see sales rise to 15,000 pounds due to an unusually large crop of walnuts. If the price elasticity of demand is 1.8, what is the new price per pound of walnuts?

P = $4

Which statement regarding capital investments is correct?

Recessions discourage capital investments because incomes of consumers grow slowly.

Some colleges and universities charge tuition by the credit hour, while others charge tuition by the term, allowing students to take as many classes as they desire. How do these tuition structures affect the incentives students face when deciding how many classes to take?

Students are encouraged to take more courses if they are charged by the semester.

Theoretically, how would an individual working at minimum wage react to an increase in the minimum wage, ceteris paribus?

The individual would increase working hours.

In Virginia, people buy more strawberries in May than in December. Which explanation for this is consistent with utility theory?

The lower price in May, due to seasonal production, leads to higher MU/P in May than in December.

If a Prisoner's Dilemma game is repeated daily, such that two rival stores choose a price simultaneously each morning for an extended number of days, which outcome can happen?

There will more likely be cooperation to achieve an outcome different from the Nash equilibrium that is better for both firms.

Which of the following is NOT a reason why standards for reducing pollution are popular?

They lead each firm to have the same abatement costs.

Which situation would be classified as leisure according to its economic definition?

Trevor goes mountain climbing on his day off from work.

If an open source project is using a source license that permits selling support contracts, the creators of open source software can make a profit by selling support contracts.

True

Over the past few years, several U.S. states have either legalized recreational marijuana or at least decriminalized its use. Proponents argue that legalizing the use of marijuana would help the economy by boosting economic activity and reducing costs. Do you agree?

Yes, legalizing marijuana will move money from the underground economy and boost economic activity thereby maximizing consumer and producer surplus. Although answers may vary, one of the central economic arguments in favor of legalizing marijuana is that allowing the market to freely operate (even for marijuana) allows consumer and producer surplus to be maximized. When restrictions are placed on a market (in this case, a restriction of no legal sales), any efficiency gains must be achieved in the underground market, where risks are higher. This tends to raise prices that consumers pay, raise costs incurred by producers, and produce no government revenue in terms of taxes. Another argument is that increased supply of legal marijuana will drive down prices, making it less profitable for marijuana traffickers, essentially putting them out of business. But not all people support such policies. Some argue that legalizing marijuana may encourage its use, thereby reducing productivity, among other effects.

Which of the following would be most inelastic?

a cavity filled at the dentist

If it is not profitable for more than one firm to operate within an industry, this is an example of:

a monopoly due to economies of scale.

When economists assume people make rational decisions, it means that:

a rational person will respond to the benefits and costs associated with incentives.

A cell phone service allows unlimited text messaging between its customers and any 10 persons of the customer's choice, but it charges a flat fee per 100 messages between its customers and others beyond the 10 initial persons. What type of network is this?

a social network

The price of apples has recently fallen in the marketplace. From this information, we can safely predict that:

a surplus of apples must have existed.

The main role of a market is to:

allocate resources.

Which of these is most likely to decrease the demand for labor in the nursing industry?

an increase in Web-based medical services that allow patients to self-diagnose minor illnesses

Cost-benefit analysis for environmental policies includes all of the following EXCEPT:

an unambiguous estimation of potential costs and benefits.

Which of the following is a characteristic of a monopoly firm?

barriers to entry

In economics, the term "land" refers to

both a physical area of the Earth's surface and natural resources.

Industrial agglomeration occurs because of which economic phenomenon?

economies of scale

If firms in a monopolistically competitive industry are experiencing economic losses in the short run, some firms will _____ the industry, _____ demand until each firm earns a normal profit.

exit; increasing

The economist Henry George proposed that all tax revenue be collected by taxes on land. If land were perfectly inelastic in supply, then a property tax on land would:

have no effect on the supply of land available to society.

Monopolistic competition is like perfect competition in that they both:

have numerous competitors.

If the discount rate _____, the present value today _____.

increases; decreases

In the loanable funds market, the price on the vertical axis is the:

interest rate.

Kellogg, General Mills, Post, and Quaker Oats dominate the cereal market. This industry, which has consistently displayed profits in the long run is also difficult to enter due to brand recognition. The cereal industry is an example of what type of market structure?

oligopoly

In the long run:

only firms in a competitive market achieve both allocative and productive efficiency.

Which of the following is NOT considered an explicit cost?

opportunity cost of capital

When income decreases, the budget line:

shifts inward.

Facebook is a:

social network

Another term for externality is:

spillover.

As wages rise, if an employee works the same number of hours as before, then the:

substitution effect and the income effect are of equal magnitude.

If the United States can produce more of both bread and milk than Germany can, then:

the United States can still benefit from trade with Germany because of comparative advantage.

Which of the following is NOT a measure of income?

your assets as of July 1, 2014