Econ Practice Exams

The average variable cost of producing four widgets is

$2.50

Comparison of marginal revenue to marginal cost

(i) and (ii) only

Refer to the above graph. To maximize profits, this firm would produce:

0E units, which will result in economic profits equal to ABGH.

Which of the following best expresses the law of diminishing returns?

As successive amounts of one resource (such as labor) are added to fixed amounts of other resources (such as property), beyond some point the resulting extra output will decline.

Successful price discrimination requires that:

buyers with inelastic demand be charged higher prices than buyers with elastic demand.

Monopolies use their market power to

charge a price that is higher than marginal cost.

If the minimum wage is set at W3:

employment will fall and unemployment will rise.

Sunk costs refer to costs that are avoidable at the time that an individual is making a decision about whether or not to undertake a particular activity. (True; False)

false

The basic difference between the concepts of 'scarcity' and 'a shortage' is that scarcity can be eliminated by allowing the price of a product to rise while that is not the case for a shortage, (true; false)

false

The following is how we defined a free good: "A good which if its price is zero people will want to consume more of it than is available." (true; false)

false

An economic outcome is said to be efficient if the economy is

getting all it can get from the scarce resources it has available.

A monopoly chooses to supply the market with a quantity of goods that is determined by the intersection of the

marginal revenue and marginal cost curves.

A competitive firm's marginal cost curve is regarded as its supply curve because

the marginal cost curve determines the quantity of output the firm is willing to supply at any price.

Suppose the demand curve for product x is downward sloping and the supply curve is upward sloping. If a per unit tax is imposed in the market for this product,

the tax burden will be shared by buyers and sellers.

A natural monopoly occurs when

there are economies of scale over the relevant range of output.

The satisfaction or pleasure one gets from consuming a good or service is:

utility

What is the total variable cost of producing five widgets?

$15.00

Refer to the above graph. What is the amount of the excise tax in terms of price per unit sold?

$2

Refer to Figure 9-5. The size of the tariff on carnations is

$2 per dozen.

Suppose that a business incurred implicit costs of $800,000 and explicit costs of $2.7 million in a specific year. If the firm sold 10,000 units of its output at $300 per unit, its accounting profits were:

$300,000 and its economic loss was $500,000.

The firm in Exhibit 0136, a profit-maximizing monopolist that does not price discriminate, is making a profit of:

$5500.

Refer to the above, graph. What is the total amount of tax revenue going to the government?

$6

Tammie makes $150 a day as a bank clerk. She takes off two days of work without pay to fly to another city to attend the concert of her favorite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Tammie's trip to the concert is:

$600.

Refer to the table above. What price should the firm charge to maximize its profit?

$7

Refer to the table above. What is the price elasticity of demand between the prices of $3 and $2?

.55

Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the 10th unit of consumer goods will be:

1/3 of a unit of capital goods.

Output and price for the firm in Exhibit 0136, a profit-maximizing monopolist that does not price discriminate, are:

1100 and $14

A study of mass-transit systems in American cities revealed that in the long-run the price elasticity of demand is 3.1. This would suggest that the short run price elasticity is most likely to be:

2.

Suppose a gardener produces both green beans and corn in her garden. If the opportunity cost of one bushel of corn is 3/5 bushel of green beans, then the opportunity cost of 1 bushel of green beans is

5/3 bushels of corn.

Refer to the above graph. The excise tax on this product as shown in the graph is ultimately paid:

50 percent by consumers and 50 percent by producers.

Refer to the table above. Suppose the market price is $580, the profit maximizing output for this competitive firm is

9 units of output.

Which of the curves is most likely to represent marginal cost?

A

Refer to Figure 13-6. Which of the curves is most likely to represent average variable cost?

C

Clara states that "there is a high correlation between the level of people's education and the level of their income." Ellie replies that the correlation occurs because "more education is the best way to earn more income in this country."

Clara's statement is positive and Ellie's statement is normative.

Economics promotes which of the following as the way to make the best decision?

Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

Refer to the above graph. It represents a profit-maximizing firm producing under conditions of pure competition. When the firm is in equilibrium in the short run, its average variable cost is:

DB.

Refer to the above graph. It represents a profit-maximizing firm producing under conditions of pure competition. When the firm is in equilibrium in the short run, the amount of economic profit per unit is:

EH.

One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this?

He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

The Mear Corporation finds that its total spending on machine parts increases after the price of machine parts falls, other things being equal. Which of the following is true about the Mear Corporation's demand for machine parts with the price change?

It is price elastic.

Suppose a cell-phone manufacturer currently sells 20,000 cell-phones per week and makes a profit of $8000 per week. A manager at the plant observes, "Although the last 4,000 cell phones we produced and sold increased our revenue by $6,100 and our costs by $6,900, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal (best) number of cell phones." Had the firm not produced and sold the last 4,000 cell phones, would its profits be higher or lower, and if so by how much?

Its profits would be $ 800 higher.

our student film society at the UD is looking for an auditorium to use for an all-day Star Wars film program and is willing to pay up to $200. The UD has a new auditorium that would be perfect for the event. However, according to the campus facility manager, "The daily rent on the auditorium is $450, and amount that includes $300 to help pay for the cost of building the auditorium, $50 to help pay for insurance, and $100 to cover the extra costs of electricity and janitorial services for a one-day event."

None of the above is correct.

For a profit-maximizing monopolist, the firm selects the output where

P > MR = MC.

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?

Price will fall and the effect on quantity is ambiguous.

Which of the following is an example of a normative statement?

Reducing tax rates on the wealthy would benefit the nation.

The study of economics exists because:

Resources are scarce in relation to economic wants.

Which is true of price discrimination?

Successful price discrimination will provide the firm with more profit than if it did not discriminate.

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

The cost of the steel that is used in producing automobiles

Which of the following statements is correct?

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

Suppose the government, in an attempt to help low income workers, sets a minimum wage at W2.

The legislation will have no effect on this market and the wage will be W1.

Which of the following events would cause a movement upward and to the right along the supply curve for tomatoes?

The price of tomatoes rises.

Which of the following is NOT a characteristic associated with binding rent controls?

The quantity of rental units will be greater with rent controls than under a free market for apartments.

Which of these statements best represents the law of demand?

When the price of a good falls, buyers respond by purchasing more of the good.

All economic systems must answer certain fundamental economic questions. Which is not one of these questions?

Which actions should government take to reduce inflation?

Which is an illustration of a microeconomic question?

Will a new type of television set increase the number of buyers?

Which will not cause the supply curve to shift?

a change in the price of the good

Refer to the above graph, which shows the market for chicken where D1 and D2 represent different demand curves. A change from E1 to E2 is most likely to result from:

a decrease in consumer incomes.

Which of the following events would result in an increase in equilibrium price and an ambiguous change in equilibrium quantity?

a decrease in supply and an increase in demand

Which would cause a decrease in the quantity supplied of computers?

a decrease in the demand for computers

Which of the following would most likely have caused the production possibilities frontier to shift outward from A to B?

a general technological advance

Suppose the government has, as its objective, raising tax revenue to pay for highway construction. That is, it wants to maximize tax revenues. For the government to achieve this objective it would want to find a good to tax which has:

a low price elasticity of demand.

The current deep recession with a large number of workers and factories unemployed would be represented in a production possibilities frontier graph by

a point inside the PPC.

Refer to the above graph. What is the area that represents the efficiency (deadweight loss) loss of the tax?

abc

Which of the following expressions is correct?

accounting profit = economic profit + implicit costs

Marginal cost tells us the

amount by which total cost rises when the output is increased by one unit.

Refer to the above graph, which shows the market for a product where D1 and D2 represent different demand curves. Which of the following could not explain an increase in price from P1 to P2?

an increase in production costs

When an economist describes a market, they mean:

any mechanism or institution which coordinates actions of consumers and producers and which brings them together to trade.

The basic difference between the short run and the long run is that:

at least one resource is fixed in the short run, while all resources are variable in the long run.

A point inside the production possibilities curve is:

attainable, but the economy is inefficient.

In long-run equilibrium under conditions of pure competition and productive (technical) efficiency, all firms produce at minimum:

average total cost.

People demand more of product X when the price of product Y decreases. This means X and Y are:

complements

An increase in the tariff on foreign-produced automobiles would be least likely to benefit:

consumers of automobiles

Two goods are substitutes if a decrease in the price of one good

decreases the demand for the other good.

Refer to Figure 9-5. Putting a tariff on carnations

decreases the number of carnations imported by 200.

In pure competition, price is determined where the industry (market):

demand and supply curves intersect.

For a good that is a necessity,

demand tends to be price inelastic.

The term tax incidence refers to the

division of the tax burden between buyers and sellers.

Refer to the above graph. Consider a situation where price increases from P3 to P4. In this price range, demand is relatively:

elastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area A).

If a union argues that a price cut will increase revenues of the firm and management argues that a price cut will decrease total revenue, then the price elasticity of demand is:

elastic from the union's perspective; inelastic from management's perspective.

If the demand for a product is perfectly inelastic, the burden of a per-unit tax paid by the seller of the product will be:

entirely on the consumers of the product.

The opportunity cost of taking a semester-long economics class is

equal to the highest value of an alternative use of the time and money spent on the class.

Consider the production possibilities curve for a country that produces only 2 goods: tractors and pineapples. Suppose that it is not possible for this country to increase its production of pineapples without producing fewer tractors. The current output combination is inefficient. (True; False)

false

Economists support the practice of scalping because it redistributes the good or service being scalped from persons who value the good the highest to those who put the least value on the good. (true; false)

false

Demand is elastic if the price elasticity is

greater than 1.

In a competitive market, the actions of any single buyer or seller will

have no impact on the market price.

If at a given price the quantity supplied of a product is greater than the quantity demanded, then:

here is a surplus of the product.

When the price of a product falls for a normal good, the:

income and substitution effects will encourage consumers to purchase more of the product.

A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If the firm increases its output, then total revenue will:

increase and profits will decrease.

Putting a tariff on a product is least likely to result in a(n):

increase in the efficiency in the domestic industry producing the product.

Technological advance improves productivity in all firms in a purely competitive industry. This change will result in a(n):

increase in the short-run supply curve for a firm in the industry.

If a product has a short-run elasticity of supply equal to zero, then an increase in the demand for the product will:

increase price and leave quantity sold unchanged.

If the price elasticity of demand for a product is equal to 0.5, then a 10 percent decrease in price will:

increase quantity demanded by 5 percent.

An increase in demand for oil and an increase in supply of oil will:

increase quantity, but whether it increases price depends on how much each curve shifts.

Suppose the firm is a pure monopolist in the production of good X. Suppose further that the price of the variable input labor rises. As a result the profit maximizing monopolist will have an incentive to

increase the price of X and decrease the quantity of X produced.

What is the most likely effect of the development of television, videocassette players, and rental movies on the movie theater industry?

increased price elasticity of demand for movie theater tickets

By free enterprise, we mean that:

individuals may obtain resources, organize production, and sell the resulting output in any legal way they choose.

Unemployment:

is illustrated by a point inside the production possibilities curve.

The combination of food and clothing shown by point G on the above graph:

is not attainable, given society's available resources and technology.

A firm should always continue to operate at a loss in the short run if:

it can cover its variable costs and some of its fixed costs.

If a firm decides to produce no output in the short run, its costs will be:

its fixed costs.

A monopolist produces

less than the socially efficient quantity of output, but at a higher price than in a competitive market.

In order to sell more of its product, a monopolist must

lower its price.

Average total cost is increasing whenever

marginal cost is greater than average total cost.

From an economic perspective, when consumers leave a fast-food restaurant because the lines to be served are too long, they have concluded that the:

marginal cost of waiting is greater than the marginal benefit of being served.

Cross price elasticity of demand between goods that are complements is:

negative

The production possibilities curve bows outward from the origin because:

opportunity costs increase as the production of a good increases.

Profit-maximizing firms enter a competitive market when, for existing firms in that market,

price exceeds average total cost.

All of the following are held to be constant when the supply curve for a product is drawn, except the:

price of the product.

When buyers in a competitive market take the selling price as given, they are said to be

price takers.

The market system is characterized by:

private ownership of the means of production.

The rationing function of prices refers to the

process by which prices direct existing supplies of a good or service to consumers who value it most highly.

Explicit costs

require an outlay of money by the firm.

The price elasticity of demand is a measure of the:

responsiveness of quantity demanded to a change in price.

As a student of economics, when you speak of scarcity, you are referring to the ability of society to:

satisfy economic wants given limited resources.

A black market could arise as a result of:

setting a legal price ceiling below the equilibrium price.

Refer to the above graph. Given this market, if the government sets a maximum price at $20, then this action results in a:

shortage of 5,000 units.

When product price is below average variable cost, a firm in a competitive market will

shut down and incur fixed costs.

A tax on imported commodities is known as a(n):

tariff

Each of the following is a determinant of demand except

technology

Economics is a social science concerned with:

the best use of scarce resources to achieve the maximum satisfaction of economic wants.

Refer to the above diagram, which shows three supply curves for corn. Which of the following would cause the change in the supply of corn illustrated by the shift from S1 to S2?

the development of a more effective insecticide for corn rootworm

Refer to Figure 9-5. With free international trade and without a tariff,

the domestic price is equal to the world price.

Comparative advantage describes the situation where:

the opportunity cost of producing a good is lower for one country than for a second country.

Competition is more likely to exist when:

there is free entry into and exit out of industries.

With allocative efficiency:

there is production of that particular mix of goods and services most wanted by society.

Refer to the above data. Diminishing marginal returns become evident with the addition of the:

third worker.

Suppose there is an increase in steel prices. We would expect the supply curve for steel barrels

to shift leftward.

Average total cost is equal to

total cost/output.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

total profit is maximized.

When the demand for a good is price-elastic at a given output level, it is also known that:

total revenue for the good will increase if its price decreases.

The term consumer sovereignty means that:

what is produced is ultimately determined by what consumers buy.

You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out by drought, and that this will cause the price of peanuts to double by the end of the year. As a result,

your demand for peanut butter increases today.