Micro

Which of the following is most likely to shift the demand for aircraft mechanics to the right?

An increase in the demand for air travel

Refer to the following diagram and assume a perfectly competitive market structure. GRAPH 3 again In the short run, the firm will stop production when the price falls below

0D

At the current production level of good X, price is greater than marginal cost. Which of the following actions would lead to greater efficiency?

Increasing the production of good X

Which of the following is true for a perfectly competitive firm in long-run equilibrium?

It is allocatively efficient.

A collusive agreement to fix prices among firms in an oligopolistic industry is most likely to be broken under which of the following conditions?

It is easy for new firms to enter into the industry.

Which of the following is true about a firm's average variable cost?

It will equal average total cost when fixed costs are zero.

Which of the following is NOT a characteristic of monopolistically competitive markets?

Long-run economic profits

The following questions refer to the graph below. The market is currently in equilibrium GRAPH 2 If a price floor is set at X, the quantity demanded will

decrease from 0S to 0R

Price discrimination occurs when

differences in a product's price do not reflect differences in costs of production

GRAPH 4 The relationship in the graph above best illustrates the economic concept of

diminishing marginal returns in production

The profit-maximizing output level produced by an unregulated monopoly is

less than the socially optimal level, since the price paid by consumers exceeds the firm's marginal cost

The basic economic problem of all countries is the existence of

limited resources and unlimited wants

Economies of scale exist when

long-run average total cost decreases as output increases

The additional satisfaction received from consuming an additional unit of a good is called the

marginal utility

Which of the following is true in the elastic range of a firm's demand curve?

A decrease in price will likely lead to an increase in total revenue.

Which of the following is most likely to increase the supply of soldiers for an all-volunteer army?

A decrease in the average wage rate in civilian employment

Which of the following tends to increase the gap in earnings between skilled and unskilled workers over time?

A decrease in the demand for unskilled workers relative to skilled workers

Assume that the demand for a certain good is perfectly inelastic and the supply curve of the good is upward sloping. Which of the following occurs in the market for the good if the price of an input used to produce the good increases?

A decrease in the supply and an increase in the equilibrium price

In microeconomics, the short run is defined as which of the following?

A period during which some inputs in a firm's production process cannot be changed

An increase in which of the following will most likely result in a long-run surplus of a product?

A price is set by law above the equilibrium price

Refer to the following diagram and assume a perfectly competitive market structure. GRAPH 3 At the price 0A, economic profits are

ABKH

If bologna is an inferior good, which of the following must be true?

An increase in consumer income will decrease the demand of bologna.

Which of the following will decrease the demand for beef?

An increase in the price of potatoes, if potatoes and beef are complementary goods

Which of the following is always true of the relationship between average and marginal costs?

Average variable costs are increasing when marginal costs are higher than average variable costs.

Assume that a monopolist is producing in the inelastic portion of its demand curve. Which of the following will occur if the monopolist decreases its price?

Both total revenue and profits will decrease.

GRAPH 11 The graph above shows the market for good X The letters in the graph denote the enclosed areas If the government imposes an excise tax of t dollars on each unit of good X, which of the following represents the consumer surplus, producer surplus, and deadweight loss after the imposition of the tax?

Consumer Surplus: AProducer Surplus: GDeadweight Loss: D+E

The following questions refer to the diagram below.The letters on the graph represent enclosed areas. GRAPH 15 If a price ceiling is set at P1, which of the following areas represent the resulting consumer surplus, producer surplus, and deadweight loss?

Consumer SurplusProducer SurplusDeadweight Lossf + g + ikh + j

If the market demand for a good is inelastic and the supply is elastic, which of the following is true when there is an increase in sales tax?

Consumers will bear most of the burden of the tax.

Which of the following is true if a monopolist's marginal revenue is negative at the current level of output?

Demand for its product is price inelastic.

Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1. GRAPH 9 again The deadweight loss created by the tax is equal to

GKI

Scarcity is correctly described by which of the following statements? I Scarcity exists if there are more uses for resources than can be satisfied at one time. II Scarcity exists if decisions must be made about alternative uses for resources. III Scarcity would not exist in a society in which people wanted to help others instead of themselves.

I and II only

The demand curve for a normal good slopes down for which of the following reasons? I. An increase in the price of the good induces consumers to purchase substitute products. II. An increase in the price of the goods reduces consumers' purchasing power. III. An increase in the price of the good increases consumers' utility from consuming that good.

I and II only

Which of the following are characteristics of a perfectly competitive industry? I. New firms can enter the industry easily. II. There is no product differentiation. III. The industry's demand curve is perfectly elastic. IV. The supply curve of an individual firm in the industry is perfectly elastic.

I and II only

A perfectly competitive producer of steel rods and steel beams employs 100 workers with identical skills. If steel rods and steel beams sell for the same price, which of the following rules should the producer always follow to use the 100 workers efficiently? I. Allocate workers so that the average cost of producing beams equals the average cost of producing rods. II. Allocate workers so that the marginal product of labor is the same in both rod production and beam production. III. Allocate half the workers to rod production and half the workers to beam production.

II only

The opportunity cost of owning a business is equal to which of the following? II. The economic profits earned in the business II. The accounting profits earned in the business III. The profits that could be earned in another business using the same amount of resources

III only

The following questions refer to the graph below, which shows the cost curves of a firm. Graph 5 Which of the following will be true if the firm is in a perfectly competitive market and the price is P1 ?

In the long run, existing firms in the industry will produce an output level greater than Q1.

Assume a firm uses only two inputs, capital (K) and labor (L), to produce its output. Let the marginal product of capital be MPK , the marginal product of labor be MPL , the price of capital be PK , and the price of labor be PL . The least-cost combination of capital and labor needed to produce a given level of output is given by which of the following?

MPL /PL = MPK /PK

At the current output level, a firm finds that it has the potential to increase its profit by expanding output. If P = price, MR = marginal revenue, and MC = marginal cost, which of the following must hold at the current output for this firm?

MR > MC

Suppose that a consumer purchases two goods X and Y and that the marginal utility of X is MUx, the total utility of X is TUx, the marginal utility of Y is MUy, and the total utility of Y is TUy. If the prices of X and Y are Px and Py, respectively, which of the following expressions defines consumer equilibrium?

MUx/Px = MUy/Py

Which of the following best describes a perfectly competitive market?

Many small firms producing a homogeneous product and facing no significant barriers to entry

For a firm hiring labor in a perfectly competitive labor market, the marginal revenue product curve slopes downward after some point because as more of a factor is employed, which of the following declines?

Marginal product

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?

Marginal revenue is equal to marginal cost, and price is equal to average total cost.

Suppose that a large number of unskilled workers enter a nation's labor market. If the labor market is competitive, the number of unskilled workers hired and the wage rate will most likely change in which of the following ways?

Number of Unskilled Workers HiredWage RateIncreaseDecrease

Graph 13 The graph above shows a monopsony labor market. In the absence of any regulations, which of the following represents the number of workers the firm will hire and the wage rate it will offer to those workers?

Number of WorkersWage Rate20$20

GRAPH 14 The graph above depicts cost and revenue curves for a typical firm in a monopolistically competitive industry. Suppose that the firm is producing 0M units of output. To maximize profits, it should do which of the following to output and price?

OutputPriceDecreaseIncrease

Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1. GRAPH 9 The total amount of tax collected by the government is equal to

P1GIP2

A market is clearly NOT perfectly competitive if which of the following is true in equilibrium?

Price exceeds marginal cost.

A decrease in raw material prices will change the equilibrium price and quantity in a market in which of the following ways?

PriceDecreaseQuantityIncrease

The following questions are based on the graph below, which shows the cost and revenue curves of a monopoly firm. GRAPH 10 If this were a perfectly competitive industry with the same costs as shown on the graph, the equilibrium price and output would be which of the following?

PriceOutput0TQ3

If the marginal cost curve of a monopolist shifts up, which of the following will occur to the monopolist's price and output?

PriceOutputIncreaseDecrease

If a perfectly competitive industry were monopolized without any changes in cost conditions, the price and quantity produced would change in which of the following ways?

PriceQuantityIncreaseDecrease

The following questions are based on the graph below, which shows the cost and revenue curves of a monopoly firm. GRAPH 10 again The economic profit of the profit-maximizing monopolist is given by the area

RULI

The following questions refer to the graph below, which shows the cost curves of a firm. GRAPH 5 again If the firm produces Q1 units of output with two inputs, the firm will be experiencing which of the following in the short run and in the long run?

Short RunLong RunDiminishing marginal returnsEconomies of scale

Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?

Short-Run PriceShort-Run Industry OutputMovement FirmsDecreaseDecreaseExit

A change in which of the following will cause a change in the supply of personal computers (PC's) in the short run?

Technology

GRAPH 7 The graph above illustrates the labor market for teenage workers. The current minimum wage for all workers is W1. If Congress introduces a sub-minimum wage, W2 that applies only to teenagers, what is the most likely effect on teenage employment?

Teenage employment will increase because firms will want to hire more teenagers at W2 than at W1.

The study of economics is primarily concerned with which of the following?

The allocation of scarce resources, given unlimited wants

Assume a consumer finds that his total expenditure on compact discs stays the same after the price of compact discs declines. Which of the following is true for this price change?

The consumer's demand for compact discs is unit price elastic.

Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1. GRAPH 9 again Which of the following bears the total tax burden?

The consumers and the producers each bear a part of it.

The following questions refer to the graph below, which shows the cost curves for a profit maximizing, perfectly competitive firm. GRAPH 8 again If marginal revenue is equal to P1, all of the following statements are true EXCEPT:

The firm will increase production in the long run.

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?

The firm's marginal costs will increase at each level of output.

GRAPH 11 The graph above shows the marginal revenue product curve and supply curve of labor for a firm. The introduction of new management techniques dramatically increases workers productivity. Which of the following changes is most likely to occur?

The marginal revenue product curve will shift to the right, increasing wage rate.

Which of the following would cause the equilibrium price of good X to increase?

The price of an essential input in the production of good X increases.

GRAPH 6 The graph above shows the supply and demand curves for artichokes. The surgeon general announces that eating an artichoke a day dramatically reduces one's likelihood of developing cancer. Simultaneously an infestation of the artichoke weevil severely damages the crop. Which of the following will definitely occur as a result?

The price of artichokes will increase.

A constant-cost, perfectly competitive industry is in long-run equilibrium. If the demand for the good increases, which of the following will occur in the long run?

The price will remain unchanged.

Assume that a profit-maximizing monopoly is charging a single price. If the monopoly can price discriminate and charge each consumer what he or she is willing to pay, which of the following will occur?

The quantity of output produced will increase.

Which of the following is true in the market for a certain product if producers consistently are willing to sell more at the going price than consumers are willing to buy?

There is a price floor on the product.

The following questions refer to the graph below. The market is currently in equilibrium GRAPH 1 In a competition equilibrium consumer surplus is the area of

WYZ

When labor supply in a competitive labor market increases, the equilibrium wage rate and employment will change in which of the following ways?

Wage RateDecreaseEmploymentIncrease

If the minimum wage for teenagers increased to a rate higher than their market equilibrium wage, what would be the effect on their wage and employment?

WageEmploymentIncreaseDecrease

If the only two firms in an industry successfully collude to maximize their joint profit, the price for the product will be

above the marginal cost of production

The supply curve for automobiles will shift to the left in response to

an increse in wages in the automobile industry

One characteristic of perfectly competitive markets is that individual firms

are free to enter or exit an industry in the long run

Beyond a certain level of output, the short-run marginal cost will rise because

at least one input is fixed and eventually diminishing returns will occur

The following questions refer to the graph below, which shows the cost curves for a profit maximizing, perfectly competitive firm. GRAPH 8 The vertical distance CF represents the

average fixed cost of producing Q1 units of output

Marginal cost is defined as the

change in total cost resulting from producing an additional unit of output

Marginal revenue product is defined as the

change in total revenue that occurs when one additional unit of an input is employed

In the long run, a monopolistically competitive firm is allocatively inefficient because the firm will

charge a price greater than the marginal cost

If the increase in the price of one good decreases the demand for another, then the two goods are

complementary goods

GRAPH 5 The diagram above shows the demand and supply curves for a normal good. The equilibrium price could rise from P1 to P2 if

consumers' incomes increased

A farmer produces peppers in a perfectly competitive market. If the price falls, in the short run the farmer should

continue to produce only if the new price covers average variable costs

A merger of two firms may increase economic efficiency by

decreasing average total cost through an increase in economies of scale

The long-run average cost curve will be sloping downward if a firm experiences

economies of scale

The following questions refer to the diagram below.The letters on the graph represent enclosed areas. GRAPH 15 again When the market is in equilibrium, the total economic surplus is equal to area

f + g + h + i + j + k

If there are many firms in an industry and each firm's product is indistinguishable from the products of all other firms, the individual firm's demand curve will be

horizontal and identical for every firm

When a perfectly competitive firm sells additional units of output, its total revenue will

increasing at a constant rate

To alleviate a financial crisis, a university increases student fees. This action will increase university revenues if the price elasticity of demand for university education is

inelastic

Game theory is a useful model to explain the behavior of firms in a market when the firms are

interdependent

An individual's labor supply curve is derived from that person's preferences about the trade-off between income and

leisure

A single-price monopolist's marginal revenue is

less than its price

GRAPH 12 The diagram above shows an economy's current production possibilities curve for capital goods and consumer goods. If society chooses point B over point A, society is choosing

more future consumption in exchange for less current consumption

Assume that a consumer spends all her income on the purchase of two goods. If the consumer's income doubles and the prices of the two goods also double, the quantity of the two goods purchased will

not change

Interdependence among firms is a characteristic primarily associated with

oligopoly

In the short run, a decrease in production costs of a product will shift

only the supply curve to the right

Monopolistically competitive firms are inefficient because they

produce a lower level of output at a higher average cost than do perfectly competitive firms

If a perfectly competitive firm wishes to maximize profits and is producing where price exceeds both marginal cost and average variable cost, then the firm is

producing too little output

An outward shift in the production possibilities curve of an economy can be caused be an increase in

the labor force

From the point of view of economic efficiency, a monopolist produces

too little of a good and charges too high a price

The price of an airline ticket is typically lower if a traveler buys the ticket several weeks before the flight's departure date rather than on the day of departure. This pricing strategy is based on the assumption that

travelers' demand becomes less elastic as the departure date approaches

A perfectly competitive profit-maximizing firm will continue to hire additional units of an input as long as the

value of the marginal product of the input exceeds the price of the input