Econ 4001.01 Midterm

Chapter 2 Which of the following would shift the market demand curve for new textbooks "out," or to the right?

An increase in the number of students attending college.

Chapter 5 A newly-certified medical doctor who accepts a job with an HMO will earn $100,000 with probability 0.95 and $60,000 with probability 0.05. The doctor's expected income is:

$98,000

Chapter 2 Suppose there is currently a surplus of wheat on the world market. The problem of excess supply may be removed from the market by:

(a) Lowering the market price and (b) shifting the supply curve up (leftward).

Chapter 2 The price elasticity of gasoline supply in the U.S. is 0.4. If the price of gasoline rises by 8%, what is the expected change in the quantity of gasoline supplied in the U.S.?

+3.2%

Chapter 3 The price of lemonade is $0.50; the price of popcorn is $1.00. If Fred has maximized his utility by purchasing lemonade and popcorn, his marginal rate of substitution will be:

2 lemonades for each popcorn.

Chapter 7 A firm's (long run) output expansion path is:

A curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices.

Chapter 6 The short run is:

A time period in which at least one input is fixed.

Chapter 4 When the income-consumption curve has a positive slope throughout its entire length, we can conclude that

Both goods are normal.

Chapter 4 Recently, Skooterville has experienced a large growth in population. As a result, the market demand curve for housing in Skooterville:

Has shifted to the right.

Chapter 2 In recent years, the world demand curve for copper shifted rightward due to continued economic growth in China and other emerging economies. Also, the costs of extracting the copper increased due to higher energy prices. As a result, we observed:

Higher equilibrium copper prices and either higher or lower quantities.

Chapter 3 A consumer maximizes satisfaction at the point where his valuation of good X, measured as the amount of good Y he would willingly give up to obtain an additional unit of X, equals:

Px/Py

Chapter 3 The principle of revealed preference would say that if Xavier chooses market basket A over market basket B then:

If A is more expensive than B, then Xavier must prefer A over B.

Chapter 4 When the price of wood (which is an input in the production of furniture) falls, the consumer surplus associated with the consumption of furniture

Increases.

Chapter 7 An isocost line reveals the:

Input combinations that can be purchased with a given outlay of funds.

Chapter 4 Which of the following is true concerning the income effect of a decrease in price?

It will lead to an increase in consumption only for a normal good.

Chapter 4 Assume that yogurt is a normal good. If the price of yogurt rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.

Less, less

Chapter 6 A production function in which the inputs are perfectly substitutable would have isoquants that are:

Linear.

Chapter 5 Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a ________ change in rice consumption, and the income effect leads to a ________ change in rice consumption.

Negative, positive.

Chapter 5 Consider a graph in which good Y is on the vertical axis and good X is on the horizontal axis. On this graph, the income-consumption curve has a positive slope for low incomes, then it takes a zero slope for a higher income, and then it takes a negative slope for even higher incomes (the curve looks like an arc, first rising and then falling as income increases). This curve illustrates that, for all income levels,

Only X is normal.

Chapter 7 When an isocost line is just tangent to an isoquant, we know that:

Output is being produced at minimum cost.

Chapter 3 Oscar consumes only two goods, X and Y. Assume that Oscar is not at a corner solution, but he is maximizing utility. Which of the following is NOT necessarily true? a. MRSxy = Px/Py. b. MUx/MUy = Px/Py. c. Px/Py = money income. d. Px/Py = slope of the indifference curve at the optimal choice. e. MUx/Px = MUy/Py.

Px/Py = money income.

Chapter 6 The marginal rate of technical substitution is equal to the:

Ratio of the marginal products of the inputs.

Chapter 6 According to the law of diminishing returns,

The marginal product of an input will eventually decline.

Chapter 3 The slope of an indifference curve reveals:

The marginal rate of substitution of one good for another good.

Chapter 4 As we move downward along a demand curve for apples,

The marginal utility of apples decreases.

Chapter 5 Suppose the major soft drink companies develop vending machines for canned and bottled drinks that can determine your maximum willingness-to-pay for a drink, and the machine charges you that price when you purchase a drink. If this were possible, the consumer surplus in the vended soft drink market would be:

Zero because all surplus value is captured by the seller.

Chapter 3 A consumer has $100 per day to spend on product A, which has a unit price of $7, and product B, which has a unit price of $15. What is the slope of the budget line if good A is on the horizontal axis and good B is on the vertical axis?

-7/15

Chapter 6 If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called:

A production isoquant.

Chapter 2 From 1970 to 2010, the real price of a college education increased, and total enrollment increased. Which of the following could have caused this increase in price and enrollment?

A shift to the left in the supply curve for college education and a shift to the right in the demand curve for college education.

Chapter 4 The difference between what a consumer is willing to pay for a unit of a good and what must be paid when actually buying it is called

Consumer surplus.

Chapter 2 As long as the actual market price exceeds the equilibrium market price, there will be:

Downward pressure on the market price.

Chapter 2 The cross-price elasticity between a pair of complementary goods will be:

Negative.

Chapter 3 The endpoints (horizontal and vertical intercepts) of the budget line:

Represent the quantity of each good that could be purchased if all of the budget were allocated to that good.

Chapter 5 The concept of a risk premium applies to someone who is

Risk averse.

Chapter 5 An individual with a constant marginal utility of income will be

Risk neutral.

Chapter 5 Suppose Congress passes a law that states the price of gasoline may not exceed $6 per gallon (but may be lower). If the current price of gasoline is less than $6, what impact does this law have on the current price and quantity of gasoline in the US market?

The law currently has no impact, and the market clears at the equilibrium price.

Chapter 2 A market supply curve reveals:

The quantity of output that producers are willing to produce and sell at each possible market price.

Chapter 7 A firm's short-run average total cost (ATC) curve is U-shaped. Which of these conclusions can be reached regarding the firm's returns to scale?

The short-run average total cost curve reveals nothing regarding returns to scale.

Chapter 3 Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis,

The slope of the budget line will not change.

Chapter 8 A firm never operates: a. On the downward sloping portion of its AVC curve. b. On the downward sloping portion of its ATC curve. c. At the minimum of its ATC curve. d. At the minimum of its LRAC curve. e. On its long-run marginal cost curve.

a. On the downward sloping portion of its AVC curve.

Chapter 8 If a perfectly competitive firm's marginal cost (MC) and marginal revenue (MR) curves are equal at a point where MR is above AVC but below ATC, a. The firm is earning negative profit, and will shut down rather than produce that level of output. b. The firm is earning negative profit, but will continue to produce in the short run. c. The firm is still earning positive profit, as long as variable costs are covered. d. The firm is covering accounting costs, but not implicit (opportunity) costs. e. The firm can cover all of fixed costs but only a portion of variable costs

b. The firm is earning negative profit, but will continue to produce in the short run.

Chapter 8 Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pepperoni increases, what is the expected impact on Ronny's profit-maximizing output decision? a. Output increases to cover the higher input cost b. Output increases because the marginal cost curve shifts upward c. Output decreases because the marginal cost curve shifts upward d. Output decreases because the price of pizza must also increase

c. Output decreases because the marginal cost curve shifts upward

Chapter 8 Which of the following is NOT a necessary condition for long run equilibrium under perfect competition? a. No firm has an incentive to enter the market. b. No firm has an incentive to exit the market. c. Prices are relatively low. d. Each firm earns zero economic profit. e. Each firm is maximizing profit.

c. Prices are relatively low.

Chapter 6 When labor usage is at 12 units, output is 36 units. From this we may infer that: a. The marginal product of labor is 3. b. The total product of labor is 1/3. c. The average product of labor is 3. d. None of the above

c. The average product of labor is 3.

Chapter 8 A competitive firm's short run supply curve is a. Its marginal cost curve. b. The upward sloping portion of its marginal cost curve. c. The portion of its marginal cost curve that lies above average variable cost. d. The portion of its marginal cost curve that lies above average total cost. e. The upward sloping portion of its average variable cost curve.

c. The portion of its marginal cost curve that lies above average variable cost.

Chapter 7 If a firm is using the optimal, long run combination of labor and capital, a. The slopes of the production isoquant and isocost curves are equal. b. Costs are minimized for the production of a given output. c. The marginal rate of technical substitution equals the ratio of input prices. d. All of the above e. a and c only

d. All of the above

Chapter 3 The fact that Alice spends no money on travel: a. Implies that she does not derive any satisfaction from travel. b. Implies that she is at a corner solution. c. Implies that her MRS does not equal the price ratio. d. Any of the above are possible.

d. Any of the above are possible.

Which of the following costs always declines as output increases? a. Average cost b. Marginal cost c. Fixed cost d. Average fixed cost e. Average variable cost

d. Average fixed cost

Chapter 8 A firm maximizes profit by operating at the level of output where: a. Average revenue equals average cost. b. Average revenue equals average variable cost. c. Total costs are minimized. d. Marginal revenue equals marginal cost. e. Marginal revenue exceeds marginal cost by the greatest amount

d. Marginal revenue equals marginal cost.

Chapter 8 A perfectly competitive firm's profit maximizing condition can be written as: a. P = MR b. P = AVC c. AR = MR d. P = MC e. P = AC

d. P = MC

Chapter 7 Which of the following situations is NOT possible? a. Short run ATC and LRAC are both increasing for some output levels. b. SR ATC is increasing but LRAC is decreasing for some output levels. c. SR ATC is decreasing but LRAC is increasing for some output levels. d. SR ATC and LRAC are both decreasing for some output levels. e. All of the above are possible.

e. All of the above are possible.

Chapter 8 What happens in a perfectly competitive industry when economic profit is greater than zero? a. Existing firms may get larger. b. New firms may enter the industry. c. Firms may move along their LRAC curves to new outputs. d. There may be pressure on prices to fall. e. All of the above may occur.

e. All of the above may occur.

Chapter 4 The change in the price of one good has no effect on the quantity demanded of another good. These goods are: a. Complements b. Substitutes c. Both inferior d. Both Giffen Goods e. None of the above

e. None of the above

Chapter 7 For any given level of output: a. Marginal cost must be greater than average cost b. Average variable cost must be greater than average fixed cost. c. Average fixed cost must be greater than average variable cost. d. Fixed cost must be greater than variable cost. e. None of the above is necessarily correct.

e. None of the above is necessarily correct.

Chapter 8 At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves? a. They must intersect, with TC cutting TR from below. b. They must intersect, with TC cutting TR from above. c. They must be tangent to each other. d. They cannot be tangent to each other. e. They must have the same slope.

e. They must have the same slope.

Chapter 5 A newly-certified medical doctor who accepts a job in private practice will earn $250,000 with probability 0.20 and $30,000 with probability 0.80. The doctor's expected utility from income is:

0.2∗U(250,000) + 0.8∗U(30,000)

Chapter 2 A price floor policy establishes a minimum price for a market. Which of the following results from a binding price floor?

Excess supply

Chapter 6 Many mining and mineral extraction processes tend to exhibit increasing returns to scale. Suppose copper mines have increasing returns, and the existing copper mines reduce their capital and labor inputs by 25 percent in response to a global recession. What is the expected impact on copper output?

Output decreases by more than 25%.

Chapter 7 At every output level, a firm's short run average total cost (SR ATC) equals or exceeds its long run average cost (LRAC) because

There are at least as many possibilities for substitution between factors of production in the long run as in the short run.

Chapter 4 The change in the quantity demanded of a good resulting from a change in relative price with the level of utility held constant is called the ________ effect.

Substitution.

Chapter 2 The battery packs used in electric and hybrid automobiles are important components for manufacturing these cars. As the price of these batteries decline, we expect that the:

Supply curve for electric and hybrid autos will shift down (rightward).

Chapter 5 A risk-averse individual would always

Take a sure $10 rather than a 10% chance at $100.

Chapter 6 A production function assumes a given:

Technology.

Chapter 6 The marginal product of an input is:

The addition to total output due to the addition of the last unit of an input, holding all other inputs constant.

Chapter 3 Marginal utility measures:

The additional satisfaction from consuming one more unit of a good.

Chapter 4 The market demand for sirloin steak is probably more elastic than the market demand for all meat because

There are more substitutes for sirloin steak than for all meats.

Chapter 7 Which always increase(s) as output increases?

Total Cost and Variable Cost.

Chapter 6 Assuming a standard S-shaped production function, marginal product crosses the horizontal axis (is equal to zero) at the point where

Total product is maximized.

Chapter 5 Blanca would prefer a certain income of $20,000 to a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000. Based on this information:

We can infer that Blanca is risk averse.

Chapter 8 Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift? a. The firm's short run supply curve b. Average total cost curve c. Average variable cost curve d. Average fixed cost curve e. None of the above; all of these cost curves shift

d. Average fixed cost curve