Micro Economics Exam #1

Jackie finds a pair of jeans that she likes but the price tag is missing. She is willing to buy it as long as it's not more than $100. The cashier informs Jackie that the price is $72. Jackie buys the jeans, and therefore achieved a consumer surplus of: A) $100 because that is what she was willing to pay. B) $72, the price that she actually paid. C) $28, the difference between what she was willing to pay and the price. D) $0 because the jeans were not actually discounted.

$28, the difference between what she was willing to pay and the price.

Which of the following price floors for milk would not cause a surplus in the market if the equilibrium price for milk is $3.60? A) $3.90 B) $3.80 C) $3.50 D) All price floors cause a surplus.

$3.50

Another way of referring to a market economy is as a: A) demand economy. B) command economy. C) ceteris paribus. D) price system.

price system

While Steve is cleaning out his garage, he finds an old surfboard that he no longer needs. As he walks to the dumpster to throw it out, his neighbor John asks if he could have it. John offers Steve a 6-pack of beer (worth $10) in exchange, which Steve happily accepts. Steve has achieved a producer surplus of: A) $0, since he was just going to throw out the board. B) $10, the value of the beer he received. C) $5, because Steve and John benefited equally from the $10 transaction. D) $50, because that's what the surfboard was likely worth.

$10, the value of the beer he received.

If a farmer can grow 100 tubs of grapefruit or 250 tubs of oranges per acre of land, what is the opportunity cost of growing one orange? A) 0.4 of an orange B) 0.4 of a grapefruit C) 2.5 oranges D) 2.5 grapefruits

0.4 of a grapefruit

At an amusement park, Sue achieves an enjoyment value of 10 on her first roller coaster ride and an enjoyment value of 6 on her second ride. Her marginal benefit from her second ride is: A) 4. B) 6. C) 8. D) 16.

6

(Figure) What would be a reason why an economy is operating at point D. ----> see study guide

A reduction in business investment causes unemployment to increase

Which of these would be least likely to increase economic growth? A) An increase in investment in infrastructure such as new roads and rail lines. B) An increase in tariffs to protect domestic industries from foreign competition. C) An expansion of financial aid options to college students. D) Protecting intellectual property rights (such as patents) to provide incentives for innovation.

An increase in investment in infrastructure such as new roads and rail lines.

Which statement is a CORRECT description of the law of demand? A) As prices of a good rise, the quantity supplied of that good rises. B) As prices of a good fall, the quantity demanded of that good rises. C) As prices of a good rise, the demand curve shifts to the left. D) There is a positive relationship between the price of a good and the quantity demanded.

As prices of a good fall, the quantity demanded of that good rises.

When the price of running shoes is higher than the market equilibrium price, which of these occurs? A) consumer surplus rises and deadweight loss falls B) consumer surplus rises and deadweight loss rises C) consumer surplus falls and deadweight loss falls D) consumer surplus falls and deadweight loss rises

Consumer Surplus falls and dead weight loss rises

Suppose that Costa Rica is able to produce 50,000 pounds of coffee or 10,000 medical devices per day; Vietnam is able to produce 40,000 pounds of coffee or 5,000 medical devices per day. Which statement is TRUE? A) Costa Rica has an absolute advantage in medical device production, while Vietnam has an absolute advantage in coffee production. B) Costa Rica has a comparative advantage in the production of both coffee and medical devices. C) Costa Rica has a comparative advantage in coffee production, while Vietnam has a comparative advantage in the production of medical devices. D) Costa Rica has a comparative advantage in the production of medical devices, while Vietnam has a comparative advantage in coffee production.

Costa Rica has a comparative advantage in the production of medical devices, while Vietnam has a comparative advantage in coffee production.

(Figure) The area between which two points on the PPF could represent an improvement in allocative efficiency? ----> see study guide

D to B

In the market for Chinese take-out, suppose that the price of Sushi take-out, a substitute, decreases in price. What will happen to the demand for Chinese take-out? A) Demand for Chinese take-out will be eliminated. B) Demand for Chinese take-out will not change. C) Demand for Chinese take-out will increase. D) Demand for Chinese take-out will decrease.

Demand for Chinese take-out will decrease

Which headline would be LEAST likely to be studied in macroeconomics? A) Economic Growth Rises Slow and Steady B) Unemployment Falls to a 7-Year Low C) GM Expands Car Sales in China D) The Fed Raises Interest Rates

GM Expands Car Sales in Chine

Which of the following is not possible for two countries who trade computers and automobiles with one another? A) One of the countries has an absolute advantage in the production of both products. B) One of the countries has a comparative advantage in the production of both products. C) One country has an absolute advantage in one product and a comparative advantage in the other product. D) One country does not have an absolute advantage in either product but has a comparative advantage in one product.

One of the countries has an absolute advantage in the production of both products.

Which statement is NOT true when a market is in equilibrium? A) Every consumer willing and able to pay for a good is able to do so. B) There is no surplus or shortage. C) The market has cleared. D) Sellers have enough inventory to satisfy all buyers and some left over for future demand.

Sellers have enough inventory to satisfy all buyers and some left over for future demand.

Which question would be considered a normative question? A) How many people participated in obstacle course racing last year? B) How much does an entry into an obstacle course race cost? C) When and where are the major obstacle races held? D) Should obstacle races be regulated to ensure the safety of its participants?

Should obstacle races be regulated to ensure the safety of its participants?

Which item is NOT an example of a market? A) eBay B) a neighborhood yard sale C) the Internal Revenue Service D) New York Stock Exchange

The Internal Revenue Service

The MOST common way in which economists model a problem is by: A) making sure as many details and facts are included. B) simplifying the model down to its basic relevant elements. C) avoiding assumptions as much as possible in order to avoid misrepresenting reality. D) using case studies to analyze individual real-life examples of problems.

Using case studies to analyze individual real-life

Which of these questions would NOT be considered one of the basic economic questions? A) Should Brazil continue to produce ethanol? B) What production method should be used to make batteries for plug-in cars? C) When will the new high-speed train in California be completed? D) To whom will the production of solar panels be sold to?

When will the new high-speed train in California be completed?

Which of these would NOT be considered a factor of production? A) mineral deposits B) a large copy machine at the office C) college graduates seeking a job D) a bank loan used to start a new business

a bank loan used to start a new business

Which factor would NOT cause the demand curve for green tea to shift to the right? A) a decrease in the price of lemons, a complement to green tea B) a decrease in the price of green tea C) new research showing that drinking green tea reduces the risk of illnesses D) All of these will shift the demand for green tea to the right.

a decrease in the price of green tea

Which factor would shift the supply of skateboards to the right? A) a new rule banning all skateboards on college campuses B) an increase in incomes among skateboard enthusiasts C) a decrease in the price of skateboards D) a large reduction in the price of wheels used to produce skateboards

a large reduction in the price of wheels used to produce skateboards

For a country to have a comparative advantage in a good, it must have: A) more labor to produce that good B) more capital to produce that good C) an ability to produce more of that good than another country has D) a lower opportunity cost of producing that good

a lower opportunity cost of producing that good

Which of these is not a problem caused by an effective price ceiling being placed on the price of electricity? A) a misallocation of resources B) a shortage of electricity C) a reduction in deadweight loss D) a reduced effort to improve quality of service

a reduction in deadweight loss

Jessica lists her faulty treadmill for sale on craigslist but does not disclose the problems with it. If Blake buys the treadmill believing that it's problem-free, this is an example of market failure due to: A) the existence of external costs B) the existence of public goods C) the lack of competition D) asymmetric information

asymmetric information

The main reason why a production possibilities frontier would have a concave shape is: A) because of decreasing opportunity costs B) because the rate at which one good can be substituted for another is fixed. C) because as a country specializes in one product, it must give up more of the other. D) because consumers face diminishing marginal returns in consumption.

because as a country specializes in one product, it must give up more of the other.

Why is entrepreneurial ability considered a factor of production? A) because it is a physical input such as land, labor, and capital B) because entrepreneurs assume the risk of producing output, an important part of the production process C) because entrepreneurs work very long hours and demand large profits for the work that they accomplish D) because it is an input that can be used by itself to produce many goods and services desired by society

because entrepreneurs assume the risk of producing output, an important part of the production process

An effective price ceiling occurs at a price _____ the equilibrium price and causes a _____. A) below; shortage B) below; surplus C) above; shortage D) above; surplus

below; shortage

When a large factory closed in the town of Greenville, income fell for many residents. As a result, demand for normal goods would _____ and demand for inferior goods would _____. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

decrease, increase

Students who never miss class and study hard generally earn higher grades than those who do not. This is an example of: A) incentives. B) specialization. C) market failure. D) marginal cost.

incentives

If there is a lack of competition in a market, a market failure results because the quantity of goods sold is ___ than the optimal level while prices are ___ than the optimal level. A) lower; lower B) higher; higher C) lower; higher D) higher; lower

lower; higher

The supply curve represents the _____ price at which a firm is willing to _____. A) minimum; sell various quantities of a good B) maximum; sell various quantities of a good C) minimum; pay for inputs D) maximum; pay for inputs

minimum; sell various quantities of a good

When an economy uses the most efficient means of farming to grow as much corn as possible, this economy has achieved: A) production efficiency and allocative efficiency. B) neither production efficiency nor allocative efficiency. C) production efficiency but not necessarily allocative efficiency. D) allocative efficiency but not necessarily production efficiency.

production efficiency but not necessarily allocative efficiency

China produces many products at the lowest cost possible, even though Chinese consumers do not desire many of these products (e.g., football helmets). China is achieving: A) production efficiency only B) allocative efficiency only C) both production efficiency and allocative efficiency D) neither production efficiency nor allocative efficiency

production efficiency only

The development of solar panels for home installation has improved due to technological advances and subsidies. These factors shift the supply curve to the _____ and result in the equilibrium price of solar panel installations to _____. A) left; fall B) left; rise C) right; fall D) right; rise

right; fall

In the market for online tutoring, there is an increase in the supply of online tutors during finals week, but there is an even larger increase in the demand for online tutors. These events will cause the equilibrium price of online tutoring to _____ and the equilibrium quantity to _____. A) fall; rise B) rise; rise C) rise; fall D) fall; fall

rise; fall

If the price of used plug-in electric cars is expected to rise in six months, the reaction in the supply of those cars in the market today would likely be a(n): A) upward movement along the supply curve. B) downward movement along the supply curve. C) shift of the supply curve to the right. D) shift of the supply curve to the left.

shift of the supply curve to the left.

Suppose that a major drought causes a 30 percent reduction in the peanut harvest. If there is no change in demand, this event would cause a _____ at the original equilibrium price, and the equilibrium price will therefore _____ and the equilibrium quantity will _____. A) shortage; rise; fall B) shortage; rise; rise C) surplus; fall; fall D) surplus; fall; rise

shortage; rise; fall

In which market is government most likely to intervene to prevent a market failure? A) the restaurant market B) the market for college education C) the market for designer clothing D) the jewelry market

the market for college education

Tim woke up this morning with a stomachache and decided to skip class in order to get more rest. What is the opportunity cost of Tim's decision to sleep in? A) the improvement in how he feels by getting more rest B) the level of pain he endured from the stomachache C) the value of attending the class he decided to miss D) the actual enjoyment of lying in bed instead of sitting in class

the value of attending the class he decided to miss

Public goods tend to be _____ because the provider of the good cannot prevent someone from enjoying the good without paying for it, which means the good is _____. A) overproduced; nonexcludable B) underproduced; nonexcludable C) overproduced; nonrival D) underproduced; nonrival

underproduced; nonexcludable

At the end of the term, Vicky wants to sell her economics textbook for at least $25, otherwise she would keep it. George is looking to buy a textbook because he's taking the class next term, and he is willing to pay at most $60. If Vicky agrees to sell the textbook to George for $45: A) George's consumer surplus is $15 and Vicky's producer surplus is $20. B) George's consumer surplus is $45 and Vicky's producer surplus is $45. C) George's consumer surplus is $60 and Vicky's producer surplus is $25. D) George's consumer surplus is $20 and Vicky's producer surplus is $15.

George's consumer surplus is $15 and Vicky's producer surplus is $20.

What does the term "laissez-faire" mean in economics? A) Government plays a major role regulating businesses to protect consumers. B) Government does not intervene in personal decisions but it controls economic decisions. C) The market economy requires intervention to ensure efficiency. D) The role of government should be as minimal as possible.

The role of government should be as minimal as possible.

One of the most important ingredients in bubble tea is the tapioca pearls that are added to the tea. If the price of tapioca flour increases, what will happen to the supply of bubble tea, all else being equal? A) The supply of bubble tea will increase dramatically. B) The supply of bubble tea will increase modestly. C) The supply of bubble tea will decrease. D) The supply of bubble tea will not change.

The supply of bubble tea will decrease.

Which policy is MOST likely to contribute to improved standards of living over time? A) addressing teacher shortages by closing schools and busing students to other schools B) allowing individuals the freedom to circumvent laws due to personal objections to them C) reducing the years that drug patents are valid to speed up production of generic versions D) adding after-school art and music programs to promote creativity

adding after-school art and music programs to promote creativity

Getting a flu shot reduces the chances of spreading the illness to one's classmates and friends. Why, then, is this considered a market failure due to external benefits? A) because the number of people who obtain flu shots is less than the socially optimal quantity B) because too many people actually get the flu shot C) because flu shots are not 100% effective D) because flu shots are priced too high relative to the cost of producing them

because the number of people who obtain flu shots is less than the socially optimal quantity