Microeconomics Final Review

62. In the market for surfboards seen in the graph, in autarky this country imports _____ units, while with free trade the country imports _____ units. (GRAPH)

?

64. Which of these typically occurs when a new tariff is imposed on the import of foreignmade steel as a result of a national defense argument? A) Consumers will pay lower prices while deadweight loss is reduced. B) Consumers will pay lower prices while deadweight loss is created. C) Consumers will pay higher prices while deadweight loss is reduced. D) Consumers will pay higher prices while deadweight loss is created.

?

22. Using the utility maximization rule, if Vicky's marginal utility of the last orange consumed is 20 and her marginal utility of the last pineapple consumed is 80, what is the price of pineapples if the price of apples is $1 and Vicky has maximized her utility? A) $4 B) $2 C) $1 D) $0.25

A

10. Which factor would NOT cause the demand curve for green tea to shift to the right? A) a decrease in the price of lemons, a complement to green tea B) a decrease in the price of green tea C) new research showing that drinking green tea reduces the risk of illnesses D) All of these will shift the demand for green tea to the right.

B

13. While Steve is cleaning out his garage, he finds an old surfboard that he no longer needs. As he walks to the dumpster to throw it out, his neighbor John asks if he could have it. John offers Steve a 6-pack of beer (worth $10) in exchange, which Steve happily accepts. Steve has achieved a producer surplus of: A) $0, since he was just going to throw out the board. B) $10, the value of the beer he received. C) $5, because Steve and John benefited equally from the $10 transaction. D) $50, because that's what the surfboard was likely worth.

B

57. Which statement is most likely to be a true one? A) A person with a high income will have high wealth. B) A person will typically maximize their income right before he or she retires at around age 65. C) Wages are the most common form of income in the U.S. economy. D) The richest quintile of Americans control about three times as much wealth as the lowest quintile.

C

61. In the figure, the opportunity cost of one ton of steel in terms of aluminum is: A) 4.0 tons. B) 2.0 tons. C) 0.5 tons. D) 0.25 tons.

C

20. Which tax structure would be an example of a progressive tax? A) $10,000 in taxes collected on $50,000 in income, and $20,000 in taxes collected on $100,000 B) $5,000 in taxes collected on $30,000 in income, and $9,000 in taxes collected on $60,000 C) $20,000 in taxes collected on $80,000 in income, and $40,000 in taxes collected on $160,000 D) $4,000 in taxes collected on $20,000 in income, and $10,000 in taxes collected on $40,000

D

29. Which market structure does not exhibit a downward-sloping demand curve for the firm? A) perfect competition B) monopolistic competition C) oligopoly D) monopoly

c

54. The speed by which a network good can enter into a virtuous or vicious cycle is generally _____ that of a non-network good. A) about the same as B) slower than C) faster than D) unrelated to

c

3. Students who never miss class and study hard generally earn higher grades than those who do not. This is an example of: A) incentives. B) specialization. C) market failure. D) marginal cost.

A

30. In the graph, which shows a firm in a perfectly competitive market, calculate the total profit. A) $80 B) $90 C) $420 D) $525

A

33. The Fish Shack is the only seafood restaurant in a remote village. It charges $15 for a bowl of fish soup and sells 10 bowls of it a day. In order to increase sales to 11 bowls a day, it must reduce the price to $14. What is the marginal revenue of the eleventh bowl? A) $4 B) $11 C) $14 D) $15

A

34. Compared to a competitive industry, a monopolist is likely to achieve _____ producer surplus while generating _____ deadweight loss. A) more; more B) more; less C) less; more D) less; less

A

37. At a price of $8, the marginal revenue of a monopolistically competitive firm is $5. If the marginal cost is $7 and average total cost is $4, what should the firm do to maximize profits? A) The first should reduce output and increase price. B) The firm should increase output and decrease price. C) The firm reduce both output and price. D) The firm should increase both output and price.

A

38. Compared with a competitive market, a cartel as a whole will produce: A) less output in order to increase prices. B) more output in order to increase prices. C) less output in order to decrease prices. D) more output in order to decrease prices.

A

46. The main advantage of issuing stock to raise financial capital is: A) limited liability of risk B) ability to retain complete ownership C) not having to share profits with investors D) the ability to keep company information and data private

A

25. AJ plans to attend a retreat on mindfulness. He paid a $500 nonrefundable registration fee, made a reservation at a hotel that costs $200, and budgeted $150 for gas and food. Two days before the retreat, he becomes ill. Assuming he is able to cancel the hotel without penalty, AJ's sunk cost equals: A) $150 B) $500 C) $650 D) $850

B

36. The difference between a natural monopoly and a monopoly is that: A) a natural monopoly maximizes profit at a quantity where marginal cost is rising. B) a natural monopoly maximizes profit at a quantity where marginal cost is falling. C) a natural monopoly does not maximize profit where marginal revenue equals marginal cost. D) a natural monopoly's marginal revenue curve is a horizontal line.

B

39. In the following game table, a dominant strategy exists for which player(s)? A) only Bobby B) only Corbin C) both Bobby and Corbin D) neither Bobby nor Corbin

B

4. In which market is government most likely to intervene to prevent a market failure? A) the restaurant market B) the market for college education C) the market for designer clothing D) the jewelry market

B

53. Which statement would describe a network effect? A) A Black Friday sale encourages you to buy a new TV. B) Your workout partner cancels her gym membership, so you end up doing so as well. C) You use your holiday bonus to pay off bills. D) A parade comes through town, disrupting traffic all afternoon.

B

1. When an economy uses the most efficient means of farming to grow as much corn as possible, this economy has achieved: A) production efficiency and allocative efficiency. B) neither production efficiency nor allocative efficiency. C) production efficiency but not necessarily allocative efficiency. D) allocative efficiency but not necessarily production efficiency.

C

12. The development of solar panels for home installation has improved due to technological advances and subsidies. These factors shift the supply curve to the _____ and result in the equilibrium price of solar panel installations to _____. A) left; fall B) left; rise C) right; fall D) right; rise

C

15. Which of the following price floors for milk would not cause a surplus in the market if the equilibrium price for milk is $3.60? A) $3.90 B) $3.80 C) $3.50 D) All price floors cause a surplus.

C

16. In the graph, if a price ceiling is set at $4, which of the following would result? A) a surplus of 20 units B) a surplus of 40 units C) a shortage of 20 units D) a shortage of 40 units

C

18. Tracey sells 100 gourmet cupcakes per day at $2 each. She is considering raising her price to $2.50 per cupcake in order to increase her revenues. If the price elasticity of demand for Tracey's cupcakes is 2, would she increase her revenues? A) Yes; revenues would rise since she would sell even more cupcakes due to its high elasticity. B) Yes; revenues would rise despite selling fewer cupcakes per day. C) No; revenues would fall because she would sell far fewer cupcakes. D) No; revenues would fall even though she would sell more cupcakes due to its high elasticity.

C

19. Suppose that the price of African safaris fell from $4,000 to $3,200 per person, and, as a result, tour operators reduced the number of trips offered by 25%. Using the midpoint method, the price elasticity of supply for African safaris is _____. A) 0.80 B) 0.89 C) 1.13 D) 1.25

C

21. An increase in the price of one product but not the other: A) shifts the budget line parallel to the left. B) shifts the budget line parallel to the right. C) changes the slope of the budget line. D) doesn't affect the budget line because income remains constant.

C

23. A company specializing in foreign language lessons sells one set of lessons for $199, but all five sets of lessons purchased upfront sell for $499, a discount of nearly 50%. The company is offering this large discount in hopes that its consumers experience: A) a sense of altruism. B) a sunk cost fallacy. C) a framing bias. D) overconfidence.

C

24. According to the figure, how many units of pizza should be purchased to maximize utility? A) 0 B) 1.5 C) 2 D) 5

C

26. A wedding planner determines that one waiter can serve 30 guests, two waiters can serve 70 guests, three waiters can serve 120 guests, four waiters can serve 160 guests, and five waiters can serve 180 guests. The marginal product of the third waiter is _____ guests. A) 36 B) 40 C) 50 D) 120

C

32. Which of these is an example of a decreasing cost industry? A) auto insurance market B) fast-food franchises C) memory chips for tablets D) lumber for home construction

C

40. In this game table, is the Nash equilibrium a Prisoner's Dilemma? A) Yes, it is because the combined payoff for the two firms is lower than another outcome B) Yes, it is because at least one of the firms ends up with the lowest possible payoff. C) No, it is not because at least one firm has achieved its highest possible payoff. D) No, it is not because both firms played their dominant strategies.

C

43. Which of these does not describe the trend of labor markets over the past 50 years? A) an increase in labor force participation by women B) a shift from manufacturing to service sector jobs C) an increase in trade protectionism policies to restrict outsourcing of jobs D) a greater reliance on real time production methods

C

44. Which of these describes a labor market in which most of a small town's workers are employed by one large company? A) monopoly B) oligopoly C) monopsony D) monopolistic competition

C

48. An important tradeoff that entrepreneurs face in their decision making is _____ versus _____. A) profit; revenues B) costs; resources C) profit; risk D) efficiency; equity

C

8. (Figure) The area between which two points on the PPF could represent an improvement in allocative efficiency? A) from A to B B) from A to C C) from B to C D) from B to D

C

5. If a farmer can grow 100 tubs of grapefruit or 250 tubs of oranges per acre of land, what is the opportunity cost of growing one orange? A) 0.4 of an orange B) 0.4 of a grapefruit C) 2.5 oranges D) 2.5 grapefruits

B

9. In the graph, an increase in quantity demanded would be represented by a change from point a to point _____, while a decrease in demand would be represented by a change from point d to point _____. A) b; b B) b; c C) c; b D) c; c

C

11. Which factor would shift the supply of skateboards to the right? A) a new rule banning all skateboards on college campuses B) an increase in incomes among skateboard enthusiasts C) a decrease in the price of skateboards D) a large reduction price of wheels used to produce skateboards

D

17. Jack owns a pumpkin patch and has been selling pumpkins for $10. As Halloween approaches, he worries about having too many unsold pumpkins, so he lowers the price by 20%. If the price elasticity for pumpkins is 1.5, how many more pumpkins will Jack sell? A) 10% more B) 13.3% more C) 25% more D) 30% more

D

59. The poverty thresholds in the United States are largely based on an adjusted measure of prices of which category or categories of goods? A) housing and transportation B) housing C) food and health care D) food

D (?)

14. Getting a flu shot reduces the chances of spreading the illness to one's classmates and friends. Why, then, is this considered a market failure due to external benefits? A) because the number of people who obtain flu shots is less than the socially optimal quantity B) because too many people actually get the flu shot C) because flu shots are not 100% effective D) because flu shots are priced too high relative to the cost of producing them

A

50. Which statement describes a public good? A) It is nonrival in consumption and nonexcludable. B) It is rival in consumption and excludable. C) It is nonrival in consumption and excludable. D) It is rival in consumption and nonexcludable.

A

52. The largest form of greenhouse gases caused by human activity is: A) carbon dioxide from the use of fossil fuel. B) carbon dioxide from deforestation. C) methane gases from livestock farming. D) nitrous oxides from synthetic fertilizer usage.

A

56. Which of these is an example of interconnection? A) sending a package to another country using the U.S. Postal Service B) sharing patent technology between iPhone and Galaxy C) national defense D) a public beach

A

60. If Costa Rica is able to produce 50,000 pounds of bananas a day, while Nicaragua can produce 30,000 pounds of bananas a day, which statement must be true? A) Costa Rica has an absolute advantage over Nicaragua in banana production. B) Costa Rica has a comparative advantage over Nicaragua in banana production. C) Costa Rica has both an absolute advantage and comparative advantage over Nicaragua in banana production. D) Costa Rica does not necessarily have an absolute advantage nor a comparative advantage over Nicaragua in banana production.

A

63. The argument that industries should be temporarily protected by tariffs or quotas to allow firms to develop a competitive product is called the: A) infant industry argument. B) competitive relief argument. C) countervailing duty argument. D) antidumping argument.

A

7. China produces many products at the lowest cost possible, even though Chinese consumers do not desire many of these products (e.g., football helmets). China is achieving: A) production efficiency only B) allocative efficiency only C) both production efficiency and allocative efficiency D) neither production efficiency nor allocative efficiency

A

47. When choosing to pursue college full-time, the costs that must be taken into account in a benefit-cost analysis include: A) tuition and room and board. B) tuition and forgone earnings during the time in college. C) room and board and the forgone earnings during the time in college. D) tuition and local transportation costs.

B

2. Which question would be considered a normative question? A) How many people participated in obstacle course racing last year? B) How much does an entry into an obstacle course race cost? C) When and where are the major obstacle races held? D) Should obstacle races be regulated to ensure the safety of its participants?

D

27. If the total cost of 3 units is $40 and the total cost of 4 units is $50, the marginal cost of the fourth unit is: A) $90. B) $50. C) $40. D) $10.

D

28. The following shows the costs associated with the number of pets groomed by Janee's Mobile Pet Grooming Service. What is the value of X? A) 50 B) 56 C) 61 D) 66

D

31. In a perfectly competitive industry, short-run economic profits will lead firms to _____ the market, causing market price to _____. A) exit; increase B) exit; decrease C) enter; increase D) enter; decrease

D

35. Which strategy makes price discrimination more difficult for a firm? A) making airline tickets nontransferable B) requiring student ID to qualify for movie ticket discounts C) using a local language instead of English for textbooks D) allowing unwanted concert tickets to be sold on StubHub

D

41. Which factor would shift the market labor supply curve to the right? A) a more stringent immigration policy B) a reduction in nonwage income C) an increase in the market wage rate D) an increase in wages in alternative jobs using the same skills

D

42. Unions tend to _____ wage differentials between a union and non-union sector by _____ entry into union-sector jobs. A) decrease; promoting B) decrease; restricting C) increase; promoting D) increase; restricting

D

45. Brett won a scholarship competition that will award him with $1,000 today and another $1,000 next year. What is the present value of the scholarship money if the interest rate is 10%? A) $2,000 B) $2,100 C) $1,736 D) $1,909

D

49. What type of government policy is generally used when a positive externality is present? A) taxes B) restrictions on consumption C) restrictions on production D) subsidies

D

51. If an unregulated industry generates pollution, the market price is _____ than the socially optimal price, and the market quantity is _____ than the socially optimal quantity. A) greater; less B) less; less C) greater; greater D) less; greater

D

55. Most new smartphones come pre-installed with a selection of free apps, including a weather app, health app, and news app. Which marketing strategy is the phone provider using? A) a teaser strategy B) versioning C) intertemporal pricing D) bundling

D

58. Which Gini coefficient corresponds to a Lorenz curve that is bowed furthest away from the 45-degree line? A) 0.00 B) 0.35 C) 0.50 D) 0.71

D

6. Suppose that Costa Rica is able to produce 50,000 pounds of coffee or 10,000 medical devices per day; Vietnam is able to produce 40,000 pounds of coffee or 5,000 medical devices per day. Which statement is TRUE? A) Costa Rica has an absolute advantage in medical device production, while Vietnam has an absolute advantage in coffee production. B) Costa Rica has a comparative advantage in the production of both coffee and medical devices. C) Costa Rica has a comparative advantage in coffee production, while Vietnam has a comparative advantage in the production of medical devices. D) Costa Rica has a comparative advantage in the production of medical devices, while Vietnam has a comparative advantage in coffee production.

D