Clep Microeconomics Practice Exam 1

a monopoly produces less output and sells for a higher price

A monopoly is less efficient than a perfect competitor because

halfway between the demand curve and the vertical axis

A monopoly with a straight, downward-sloping demand curve has a marginal revenue curve that is

A wage payment lower than the marginal revenue product of labor.

A monopsonist is identified by one of the following:

wages are depressed and fewer workers are hired

A monopsony occurs when there is only one buyer for a specific good (for example, a large company in a small town is virtually the only buyer of labor). As the buyer is interested in maximizing its own revenue, the net result is that

substitutes.

A positive sign on cross price elasticity of demand indicates that the two products are

a price set below the current (or equilibrium) market price of the good.

A price ceiling is characterized by

earns more revenue than a non-discriminating monopoly

A price discriminating monopoly differs from a non-discriminating monopoly because a discriminating monopoly

The marginal benefit of the fourth hour is at least as great as the marginal cost of the fourth hour.

A student decides that, having already spent three hours studying for an exam, she should spend one more hour studying for the same exam. Which of the following is most likely true?

The total utility this student received from eating pizza is 20 utils.

A student eats 3 slices of pizza while studying for his Economics exam. The marginal utility of the first slice of pizza is 10 utils, the second slice is 7 utils, and the third slice is 3 utils. Which of the statements below holds true with the above data?

Regressive

Because people with relatively low incomes spend a larger percentage of their income on food than people with relatively high incomes, a sales tax on food would fall into which category of taxes?

the cost of milk, which is used in the production of ice cream, rose

In the graph above, the shift in the supply curve from S to S1 for ice cream could occur because

1. Productive efficiency: they produce the quantity that is the lowest cost (Minimum ATC) 2. Allocative efficiency: they produce the optimal quantity that society wants (Price = MC)

In the long run, perfectly competitive firms have both types of efficiency:

minimum point on average variable cost.

In the short run, the shut down price is equal to

it is producing at the point at which its revenues most exceed its costs.

When a firm produces at a point where MR = MC, then it is maximizing its profits, which is to say that

resources are being used fully and efficiently.

When an economy produces a combination of goods that lies on the production possibilities frontier

a straight diagonal line sloping downward from left to right.

When opportunity cost is constant across all production levels, the productions possibilities frontier is

elastic.

When price elasticity of demand is greater than 1, demand is

complements

When the cross-price elasticity of demand is negative, the goods in question are necessarily

beneficial to some workers and harmful to other workers

When the labor demand curve is downward-sloping, an increase in the minimum wage is

A. Negotiations to obtain a wage floor B. Restrictive membership policies D. Featherbedding or make-work rules E. Efforts to increase the demand for the product they produce

Which of the following ARE among the methods unions use to increase wages?

A. Economies of scale are associated with increases in production of output. C. Economies of scale are associated with the declining or decreasing portions of the ATC curve. D. Economies of scale result in decreases in per unit average cost. E. Economies of scale may be associated with the ability to use more specialists in business.

Which of the following are TRUE about economies of scale?

A. Higher risk job. B. Investment in human capital. D. Racial discrimination. E. Psychic income.

Which of the following are the basis for a wage differential?

A decrease in the price of ice cream, a complimentary good to ice cream cones

Which of the following could have caused an increase in the demand for ice cream cones?

If the demand curve is perfectly inelastic and the supply curve is price elastic (The side with the more relative inelasticity would bear the greater tax burden).

Which of the following examples would result in consumers paying for the largest burden of an excise tax placed on a producer?

A demand curve consisting of two discontinuous segments.

Which of the following illustrates the demand curve facing an oligopolist when rival firms follow a price decrease but not a price increase?

A. A range of marginal costs over which MR = MC. C. Interdependence of rivals. D. Pricing at the kink. E. Demand curve discontinuous at the kink.

Which of the following is a characteristic of a kinked demand curve?

Excess capacity.

Which of the following is a characteristic of monopolistic competition?

P > MC.

Which of the following is a characteristic of monopolistic competition?

B. Price-maker. C. Strong barriers to entry. D. Few firms. E. P > MR.

Which of the following is a characteristic of oligopoly?

Marginal Social Costs = Private Marginal Costs + Negative Externality.

Which of the following is true about Marginal Social Costs?

The good cannot be divided into discrete units.

Which of the following is true about the pure public good?

TC = (AVC + AFC)Q.

Which of the following is true about total cost?

The production possibilities frontier is concave to the origin because of the law of increasing costs.

Which of the following statements is positive?

This is short run diminishing marginal productivity.

With capital fixed at one unit with 1, 2, 3 units of labor added in equal successive units, production of the output increases from 300 (1 unit of labor), to 350 (2 units of labor) to 375 (3 units of labor). Which of the following is a correct interpretation?

the buyer or seller.

externalities are incidental costs that are not accounted for by

are interdependent

In an oligopoly market, firms

diminishing marginal utility

A demand curve slopes downward for an individual as the result of

a monopsony buys from a monopoly

A bilateral monopoly exists when

the marginal (physical) product of labor and the output price

A competitive firm's demand for labor is determined directly by

price elasticity of demand is highly inelastic.

A tax imposed on a supplier will more likely be passed on to the consumer in the form of price increase if

marginal utility decreases with each additional unit of a good that is consumed.

According to the principle of diminishing marginal utility,

ABG.

After the monopolist enters, the consumer surplus is

results in an equilibrium that does not maximize the total benefit to society

An externality

The firm should hire more labor so that the MRPL will decrease. (If the third worker's MP = 10, then that worker generated income of 10 × $3 = $30. As the worker is paid $15, the firm is making economic profit. Therefore it should hire more workers until the productivity of the last worker just equals the revenue generated by that worker).

Assume a firm hires labor for $15 each and sells its products for $3 each. If the MP of the 3rd worker is 10, which of the following statements would be the most true?

Tax the firm.

If there is a negative externality associated with the production of a private good, which of the following is an action by government that would most likely move the market to an efficient outcome?

lead the firm to hire more workers but not to raise their wages

Consider a profit-maximizing firm in a perfectly competitive market with several sellers and several buyers (i.e., the firm is a "price taker" of the goods it sells and a "price taker" of the hourly wages it pays its workers). If a technological innovation made by someone in this firm were to significantly raise the firm's marginal physical product (but not that of any other firm's), then this innovation would

the difference between the consumer's value and the market price.

Consumer surplus is

Subsidize the firm or its customers.

If there is a positive externality associated with the production of a private good, which of the following is an action of government that would most likely move the market to an efficient outcome?

D to E

Economic growth is best represented by a movement from

negative (pollution).

Externalities can be positive (vaccinations) or

MC = MR.

Firms maximize their profits by producing a level of output at which

Output would decrease, price would increase.

For a polluting steel company, a government action to most likely achieve an optimal or efficient outcome would produce what effect on the market equilibrium price and output?

PDEP2

For this monopolist profit is the area represented by

supply is elastic

If a 3 percent increase in price leads to a 5 percent increase in the quantity supplied,

increase price because demand is inelastic

If a business wants to increase its revenue and it knows that the demand price elasticity of its product is equal to 0.78, it should

The demand curve will shift to the right, increasing the price of multigrained bread.

If consumers are advised that multigrained bread will substantially lessen the risk of cancer, which of the following will happen in the market for multigrained bread?

There would be no change in the amount of corn demanded or supplied. (Remember that a price ceiling sets a maximum price a producer may charge. Since the price ceiling (PC) is above the equilibrium price, the equilibrium price and quantity do not change as a result of the price ceiling).

If corn is produced in a perfectly competitive market and the government placed a price ceiling above equilibrium, which of the following would be true?

hire more capital (K) until the ratios are equal.

If for two resources, Labor (L) and Capital (K), the ratios of their marginal physical products are MPPK/PK = MPPL/PL the firm should:

marginal benefit would be less than marginal cost

If society overallocates its resources, then

The deadweight loss in this market would decrease.

If the government regulates a monopoly to produce at the allocative efficient quantity, which of the following would be true?

the consumer surplus will increase

If the government subsidizes producers in a perfectly competitive market, then

the supply curve will shift to the right.

If the government subsidizes the production of halogen headlights,

income effect.

If the price of a product decreases so that the consumer can buy more of it and other products, this is called the

substitution effect.

If the price of a product decreases with the price of a substitute product remaining constant such that the consumer buys more of this product, this is called the

E d = 1/5 and demand is price inelastic.

If the price of corn rises 5 percent and the quantity demanded for corn falls 1 percent, then

market prices are determined by a central plan designed by the government

In a command economy,

MC intersects AVC and ATC at their minimum points.

Marginal cost (MC) is equal to average variable cost (AVC) and average total cost (ATC) when:

the minimum of average variable cost

Marginal cost always intersects average variable cost at

total revenue is greater than total cost at its greatest distance

Marginal revenue equals marginal cost at the point where

positive income elasticity

Normal goods always have a/an

equal to earnings or profits that could have occurred using resources elsewhere.

Opportunity costs or implicit costs of a "Mom & Pop"-owned business are:

- the most substitutes available for consumers - the greatest degree of elasticity - the largest number of sellers - is not a price maker

Perfect competition has/is

any company that can engage in price discrimination will earn higher revenues than those companies that do not.

Price discrimination occurs when a company can charge different prices to different customers for essentially the same product. Therefore

total revenue.

Price times quantity measures

of the law of increasing costs.

Production possibilities frontiers are concave to the origin because

the sellers have market power

Typically in oligopolistic markets there are several buyers and few sellers. Therefore

reduce deadweight loss.

Regulating a monopoly to allocative efficiency is a measure designed to

pays less and hires fewer

Relative to a competitive input market, a monopsony

more deadweight loss

Relative to a competitive product market with the same costs, a monopoly can be expected to involve

P2.

The "fair return" price of the regulated monopolist would be

The labor-leisure trade-off favors the income effect or more leisure at higher wage rates.

The backward bending supply curve is characterized by which of the following?

the total welfare is maximized.

The competitive market provides the best outcome for society because

GEF

The dead-weight loss is

perfectly horizontal function.

The demand curve for the firm operating under perfect competition is

a price-taker.

The individual firm, operating under perfect competition, is characterized as:

is the result of resources not being perfectly adaptable between the production of two goods.

The law of increasing costs

is below the short-run average cost except at one point

The long-run average cost curve

ACE

The original consumer surplus is

the proportion of the good of the consumer's budget is high.

The price elasticity of demand for a product is greater if

the opportunity cost of producing crumpets rises as more crumpets are produced.

The shape of this PPF tells us that

P3.

The socially optimal price would be

how best to supply our unlimited wants with limited and scarce material resources.

The study of economics is correctly defined as

increasing opportunity cost of time

The supply curve for lawn-mowing services is likely to slope upward because of

ABJK.

The total profits for this monopolist are identified by

marginal utility is zero

The total utility from sardines is maximized when they are purchased until

P1.

The unregulated monopolist's price would be

the marginal utility to price ratio equal for all goods in the basket subject to the income constraint.

The utility-maximizing rule is to choose the basket of goods that