FINAL MICROECONOMIC

Governments may not act to "fix" market failures and maximize social utility because:

Bureaucrats may waste resources because government agencies don't face sufficient competition. Politicians may serve special interest groups rather than the overall public interest. Politicians may not sufficiently consider the long-term consequences of their policies. Correct all of the above

In the "circular flow model", households:

Correct supply resources and demand products

The Coase Theorem argues that:

Externality problems will sometimes be resolved via negotiation and will always require government intervention to correct. When many individuals are involved, externality problems will be corrected without government intervention.

A decrease in supply of any product will result in an increase in demand for the product.

False

A minimum wage law is an example of a price ceiling

False

A monopolist will maximize profit by maximizing price.

False

Driving a car on public highways does not create negative externalities because cars are private goods

False

Education is an example of a pure public good.

False

For a monopolist, marginal revenue equals price.

False

For the average consumer, the cost of purchasing insurance is less than expected payoff from the insurance

False

If goods X and Y are substitute goods, then if the price of good Y increases, the quantity purchased of good X will fall.

False

If the government limited the price of medical services below the equilibrium price, this would result in more people being able to obtain medical services.

False

In the United States, income inequality is greater than wealth inequality

False

Suppose scientists announce that the consumption of oranges will reduce heart disease. This announcement will result in an increase in the supply and decrease in the price of oranges.

False

Suppose the elasticity of demand for workers in an occupation is perfectly inelastic. A minimum wage law for workers in this occupation would cause unemployment.

False

The advise that we should "try our best at everything we do" is usually good economics.

False

The principle of diminishing returns is a likely cause of economies of scale.

False

When excess supply exists in any economic market, the market price will rise until the excess supply is eliminated.

False

You should always keep a business open if it can make and sustain accounting profits.

False

Which of the following statements is false?

Monopolies should always be prohibited via antitrust laws because they create deadweight losses.

Which of the following statements is true in determining the level of output a perfectly competitive firm should target to maximize profit?

Profit is maximum when marginal cost equals price and marginal cost is rising

If you increase price where the demand curve is elastic, what must happen?

Revenue decreases

Which of the following is not a determinant of (i.e. something that could cause a shift) an individual's demand for a good?

The price of the good

Suppose in Town A, the government gets rid of its parking meters and declares that all street parking must be free. Suppose in an otherwise identical Town B, parking costs $10 per hour. Where will it be easier to find parking and which town will higher income folks tend to shop?

Town B, Town B

A horizontal supply curve is more elastic than a vertical supply curve.

True

A seller may be able to increase revenues by price discriminating - charging a relatively high price to customers who have an inelastic demand and relatively low price to customers who have a relatively elastic demand.

True

Anti-trust laws are used to limit monopoly power.

True

Education is an example of a good that may generate positive externalities.

True

For a perfectly competitive firm, marginal revenue equals price.

True

In the automobile insurance industry, deductibles are meant to decrease the moral hazard associated with a claim.

True

Redistributing wealth from the rich to the poor could result in greater overall happiness if diminishing marginal utility of income exists.

True

Redistributing wealth from the rich to the poor could result in less work effort and less goods and services produced.

True

Special interests often prevail over public interests because of policies that have costs that are widely dispersed to many people, with benefits concentrated to relatively fewer people.

True

The demand for gasoline in the short-run is inelastic

True

The good "fruit" is more likely to be inelastically demanded than the good "tangerines".

True

The opportunity cost of going to the movies is greater than the price of the movie ticket.

True

The statement, "the government should impose a minimum wage below which employers can not pay" is a normative statement.

True

To achieve economic efficiency, a pollution tax should equal the dollar value of the external cost imposed by the pollution.

True

You should always keep a business open if it can make and sustain economic profits.

True

Suppose you decide to open a copy store. You rent store space (signing a one-year lease), and you take out a loan at a local bank and use the money to purchase ten copiers. Six months later, a large chain opens a copy store two blocks away from yours. As a result, the revenue you receive from your copy store, while sufficient to cover the wages of your employees, and the costs of paper and utilities, doesn't cover all of your rent and the interest and repayment costs on the loan you took out to purchase the copiers. Should you continue operating your business in the short run?

Yes, because you are covering your variable cost

Which of the following goods should be characterized as a public good?

a lighthouse

Which of the following will shift the supply curve for a product rightward?

a technological breakthrough which reduces production costs

Cable TV is an example of a:

an excludable and non-rival good

Rent control laws typically result in:

apartment shortages

Costs that do not change with output are called:

fixed costs

Suppose a businesswoman in a competitive market can sell her product for $5, no matter how many she sells. To maximize her profits, she should continue to produce and sell more of her product as long as:

her marginal costs to produce are less than or equal to $5

The price elasticity of demand for a product will tend to be more elastic:

if there are many substitutes for the product in the short-run versus the long-run if a small portion of a peoples' incomes are spent on the product Correct if there are many substitutes for the product

When income decreases, the demand for inferior goods:

increases

Generally, the economically efficient amount of industrial pollution is

less than what the free market will product

Suppose a monopolist can sell 10 widgets at $25 each. In order to sell 11 widgets, the firm must lower the price to $23. What happens to marginal revenue?

marginal revenue would equal $3

Common resources:

none of the above are excluable and rival will be consumed too slowly from society's perspective are non-excludable and non-rival

Which of the following goods or services should be characterized as a private good?

none of the above Answers: a fireworks display a street light a dam to protect against floods Correct none of the above

If the market for wheat is experiencing a surplus, you should predict that:

price will decrease, quantity demanded will rise, and quantity supplied will fall.

A monopolist:

produces and sells less output than what is socially optimal

The existence of which of the following could cause markets to be economically inefficient without government intervention?

public goods externalities asymmetric information

Demand is elastic if:

quantity demanded changes proportionately more than price

If the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price, what would happen to the quantity supplied and quality of bread?

quantity supplied decreases, quality decreases

A perfectly competitive industry is characterized by all of the following except:

sellers who sell somewhat differentiated products

The marginal cost of production is:

the amount by which total cost increases when output increases by one unit.

The opportunity cost of any particular choice is:

the best alternative to the choice.

Microeconomics is primarily about:

the decisions people must make given scarce resource

Government policies to reduce the supply of illegal drugs greatly increase the price of these drugs because:

the demand for illegal drugs is very inelastic the supply curve will shift to the right

Salaries are lowest in occupations where:

the demand for workers is low and the supply of workers is high

A person should continued doing an activity as long as:

the marginal benefits of the activity exceed the marginal costs

The price of SUVs (large vehicles) will likely fall if:

the price of small cars falls

In the labor market, the substitution effect predicts that, as wage rates increase, households will:

work more and have less leisure

Suppose the Washington Wizards owner lowers the price of Wizard game tickets and the total revenue he receives from ticket sales rises. This would be evidence that the price elasticity of demand for Wizards tickets is

elastic

A firm has total fixed costs of $5,000. Its average variable cost (AVC) to produce 100 widgets is $3,000, and its average variable cost (AVC) to produce 101 widgets is $2,990. What is the average total cost (ATC) to produce 100 widgets?

$3,050

Suppose the elasticity of demand for luxury cars is very elastic and the elasticity of supply for luxury cars equal

burden sellers and their workers more than consumers

A firm operating in a perfectly competitive market

cannot make profit in the long-run

Minimum wage laws are likely to:

cause an increase in teenage unemploymen

Which of the following pollution control strategies is likely to cost more to achieve the same pollution reduction?

command and control" regulations

A perfectly inelastic demand curve means that:

consumers do not respond to any change in price

Compared to free market outcomes, an excise or commodity tax causes:

deadweight loss because less trades will occur.

The elasticity of supply is:

defined as the % change in quantity supplied divided by the % change in price of a product inelastic for new Beatles (band that no longer exists) songs typically greater in the long-run Correct all of the above