Microeconomics Exam 2 Multiple Choice Qs

For most firms, economic profit is: A) less than accounting profit. B) equal to accounting profit. C) greater than accounting profit. D) negative.

A

The marginal utility of coffee consumption for Steve is the change in ________ generated by consuming an additional cup of coffee. A) total utility B) total consumption C) total demand D) price

A

The price elasticity of demand measures the responsiveness of the change in the a. quantity demanded to a change in price. b. price to a change in the quantity demanded. c. slope of the demand curve to a change in price. d. slope of the demand curve to a change in quantity demanded.

A

If a firm is experiencing diminishing marginal returns to labor in the short-run, which of the following must be true? a. the first workers the firm hired were better than the workers hired later on b. the positive effect of specialization in production is being offset by the negative effect of overusing the fixed input c. total product (or output) is decreasing d. the firm should buy more nonlabor resources

B

If the price of soda increases from $2.00 to $3.00 and quantity demanded falls from 100 to 50 cans, the percentage change in price is: a. 4.0 b. 0.4 or 2/5 c. 0.5 or ½ d. 1.5 or 3/2

B

The Cozy Chair Company believes it can sell 200 chairs at $200 per chair or 300 chairs at $150 per chair. Using the midpoint formula, what do they think is the price elasticity of demand? A) 2.5. B) 1.4. C) 0.7. D) 0.5.

B

For which of the following will demand be the most price elastic? a. Milk b. Happy Cow brand milk c. Happy Cow brand milk at Ralph's Grocery Store d. Each of the above will exhibit the same price elasticity of demand

C

Milk prices recently increased by 20%. In response, the purchase of milk decreased by 25%. Based on this data, the price elasticity of demand (in absolute value) equals: a. 0.8 b. 5.0 c. .05 d. 1.25

D

The term diminishing returns refers to: A) a falling interest rate that can be expected as one's investment in a single asset increases. B) a reduction in profits caused by increasing output beyond the optimal point. C) a decrease in total output due to the firm hiring uneducated workers. D) a decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant.

D

Using the information from the previous question, calculate Ernie's economic profit. a. $10,000 b. $20,000 c. $40,000 d. $9,500

D

Utility is determined by an individual's: a. income b. price c. relative price d. tastes and preferences

D

Which of the following goods is likely to have the largest price elasticity of demand? A) a bicycle B) a mountain bike C) a Cannondale mountain bike D) a green Cannondale mountain bike

D

Which of the following is a long-run adjustment? a. A new economics professor is hired on campus. b. General Motors increases its orders for steel. c. Microsoft cuts back its hiring of new graduates. d. Glow Electric disassembles one of its nuclear power plants.

D

If the young chef earn total revenue equal to $100,000 in the first year, his economic profit would be equal to a. $0 b. $100,000 c. $74,000 d. $48,000 e. $22,000

E

Which of the following is an "either-or" decision? A) Allen must decide how many courses to take this semester. B) Sally must decide how many hours to spend studying for each of the four courses that she is taking this semester. C) Chris must decide how many hours to work each week at his part-time job. D) Dylan must decide whether to major in economics or finance.

D

Which of the following is most likely to be a fixed resource for Paul's Country Fresh Pies, Inc? a. berries b. flour c. bakers d. eggs e. ovens

E

Abdul spends all of his income on food (F) and shelter (S). His budget is given by the equation 5F + 20S = 100. Which of the following consumption bundles is part of his consumption possibilities? a. 8 units of F and 3 units of S b. 14 units of F and 2 units of S c. 0 units of F and 6 units of S d. 20 units of F and 5 units of S

A

All other things constant, goods will have a more ____________ demand if their price uses up a _____________ proportion of a consumer's income. a. elastic; greater b. elastic; smaller c. inelastic; greater d. unit elastic; smaller

A

Each month Jessica buys exactly 15 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is: A) 0. B) 1. C) greater than 1. D) less than 1 but greater than 0.

A

For which of the following is demand likely to be most price elastic? a. ribeye steak b. beef (including steak, ribs, hamburger, etc.) c. meat (including beef, pork, chicken, lamb, etc.) d. protein foods (including meat, cheese, beans, eggs, fish, etc.)

A

If Vanessa buys more pomegranates and fewer bananas, the ________ of pomegranates will _______, and the ________ of bananas will ________. A) marginal utility; fall; marginal utility; rise B) marginal utility; rise; marginal utility; fall C) total utility; fall; marginal utility; rise D) marginal utility; rise; total utility; rise

A

If a 5% increase in price leads to an 8% decrease in quantity demanded, demand is: a. elastic b. unit elastic c. inelastic d. none of the above

A

If the price of soda increases from $2.00 to $3.00 and quantity demanded falls from 100 to 50 cans, the percentage change in quantity is: a. .67 or 2/3 b. 0.5 or ½ c. 1.5 or 3/2 d. 0.25 or ¼

A

Market demand is derived by: a. adding the individual quantities demanded at each price b. adding the individual prices at each quantity demanded c. subtracting the individual quantities demanded at each price d. subtracting the individual prices at each quantity demanded

A

Market demand is found by: A) adding the individual quantities demanded at each price. B) adding the individual prices at each quantity demanded. C) multiplying the individual quantities demanded at each price. D) multiplying the individual prices at each quantity demanded.

A

Price elasticity of demand is calculated as: a. the percentage change in quantity demanded divided by the percentage change in price b. the percentage change in price divided by the percentage change in quantity demanded c. the absolute change in quantity demanded divided by the absolute change in price d. the absolute change in price divided by the absolute change in quantity demanded

A

Sally consumes only two goods, A and B. If Sally has spent all her income and MUA/PA exceeds MUB/PB, she can increase her total utility by buying: a. more A and less B b. more B and less A c. more A without changing her consumption of B d. less B without changing her consumption of A

A

Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in Orlando. Sarah's husband, an economist, claims Sarah lost $43,002 running her pottery studio. This means her husband is claiming that she incurred ________ in ________ costs. A) $86,004; implicit B) $43,002; implicit C) $43,002; explicit D) $86,004; explicit

A

Suppose a glass of orange juice has a price of $2 and a glass of soda has a price of $1. If the consumer is maximizing utility: a. juice must have a higher MU than soda b. the soft drink must have higher MU than juice c. both must have the same MU d. consumers would buy twice as much orange juice than soda

A

Suppose a soccer coach has been making $25,000 per year but gives up his coaching job in order to make lace doilies. If his revenue from the sale of these doilies is $50,000, and his materials cost $20,000, then his economic profit is a. $5,000 b. $25,000 c. $30,000 d. $50,000

A

The price elasticity of demand for a good such as water is likely to be very low because: A) the price is a small percentage of most budgets. B) water has some good substitutes. C) water is considered a luxury. D) the share of income spent on water is large.

A

The price elasticity of demand for beef is estimated to be 0.60 (in absolute value). This means that a 20 percent increase in the price of beef, ceteris paribus, will cause the quantity demanded of beef to a. Decrease by 12 percent b. Decrease by 60 percent c. Decrease by 32 percent d. Decrease by 26 percent

A

The substitution effect of an increase in the price of peaches is: a. the decrease in the quantity demanded for peaches as peaches become more expensive relative to other goods b. the increase in the quantity demanded for peaches as peaches become less expensive relative to other goods c. the decrease in the demand for peaches d. the increase in the demand for peaches

A

When the price of tortilla chips rose by 10 percent, the quantity demanded of tortilla chips fell by 4 percent. This indicates that the demand for tortilla chips is a. Inelastic b. Elastic c. Unit elastic d. Perfectly inelastic e. Perfectly elastic

A

You have rented your first apartment, signing a lease that commits you to pay $500 each month for twelve months. You have to the opportunity to take a trip to Europe during the entire month of June and will be spending $2000 traveling. Your apartment will be vacant, but because of your lease, you must still pay rent. The relevant cost of taking the trip to Europe is: a. $2000, because the $500 for your June rent is a sunk cost. b. $2,500, because this is your total spending during the month of June. c. $1500, because the June rent is an opportunity cost of traveling that must be deducted from the explicit cost of the trip. d. $2500, because the June rent is an opportunity cost of traveling and must be added to the explicit cost of the trip.

A

An individual gets 5 units of utility from one slice of pizza and 9 units of utility from two slices of pizza. The principle of diminishing marginal utility implies that the total utility from three slices of pizza will be: A) exactly 12 units of utility. B) less than 13 units of utility. C) less than 9 units of utility. D) more than 14 units of utility.

B

At the optimal consumption bundle: A) the marginal utility of all goods consumed is equal. B) the marginal utility per dollar spent is equal for all goods consumed. C) the price of all goods consumed is equal. D) total utility from all goods consumed is equal.

B

Benny spends all of his money buying wine and cheese. The marginal utility of the last bottle of wine he bought is 60, and the marginal utility of the last block of cheese he bought is 30. The price of wine is $3, and the price of cheese is $2. Benny: A) is buying wine and cheese in the utility-maximizing amounts. B) should buy more wine and less cheese. C) should buy more cheese and less wine. D) is spending too much money on wine and cheese.

B

Diminishing marginal utility means that: A. as you consume more of a good, other things constant, the total satisfaction you obtain from consuming this good tends to fall B. as you consume more of a good, other things constant, the additional satisfaction you obtain from each additional unit of the good tends to fall C. as you consume more of a good, other things constant, the extra satisfaction you obtain from each extra good becomes negative D. as you consume less of a good, other things constant, the extra satisfaction you obtain from the next unit will be negative

B

Freddy has eaten three corn dogs at the county fair and knows that if he eats another, he will get sick on the roller coaster. Knowing this, and ignoring any impact that price might have on his decision, we can say that the: A) total utility of the fourth corn dog is less than zero. B) marginal utility of the fourth corn dog is less than zero. C) total utility curve is still increasing at the fourth corn dog. D) marginal utility curve is still increasing at the fourth corn dog.

B

If demand is inelastic, then: a. the price effect dominates the quantity effect, and a fall in price will cause total revenue to rise b. the price effect dominates the quantity effect, and an increase in price will cause total revenue to rise c. the quantity effect dominates the price effect, and an increase in the price causes total revenue to rise d. the quantity effect dominates the price effect, and a decrease in the price causes total revenue to rise

B

Implicit costs: a. arise from contractual agreements b. do not require an outlay of money by the firm c. arise when advance payments must be made for the use of resources d. are generally referred to accounting profits

B

It has been suggested that if NHL hockey teams would lower ticket prices, they could increase total revenue from ticket sales. Which of the following assumptions forms the basis for this suggestion? a. Demand for NHL hockey tickets is inelastic b. Demand for NHL hockey tickets is elastic c. Demand for NHL hockey tickets is unit elastic d. Demand for NHL hockey tickets is perfectly inelastic

B

Pint of MU Pint of MU BB of BB of S of S 0 0 8 2 1 24 6 4 2 20 4 6 3 16 2 8 4 12 0 0 Blueberries cost $4 per pint, while strawberries cost $2 per pint. Pedro has $16 to spend on blueberries and strawberries. The above table depicts combinations of blueberries and strawberries that he can buy with his $16. Using the above information, figure out the utility-maximizing combination of blueberries and strawberries. a. four pints of blueberries and zero pints of strawberries b. three pints of blueberries and two pints of strawberries c. two pints of blueberries and four pints of strawberries d. one pint of blueberries and six pints of strawberries e. zero pints of blueberries and eight pints of strawberries

B

Quantity demanded Price per Pound 1 $8 2 6 3 4 The above exhibit shows Reggie's demand for apples. If there are 100 people in this economy, and each has the same demand for apples as Reggie, what is the total quantity demanded in the market for apples when price is $6 per pound. a. 600 pounds of apples b. 200 pounds of apples c. the average of all quantity demanded d. the average of all prices

B

Suppose Sara spends all her income on packs of gum (G) and cans of soda (S). Her budget is given by the equation 2G + 3S = 18. Which of the following consumption bundles is part of her consumption possibilities? A. 10 units of G and 0 units of S B. 3 units of G and 4 units of S C. 5 units of G and 3 units of S D. 0 units of G and 7 units of S

B

The income effect of a price change of e-Books is the effect on consumption changes due to a change in: a. income when all prices change in the same proportion b. purchasing power caused by a change in the price of a good c. income caused by a change in the price of labor d. income sufficient to offset the effect of a price change

B

The substitution effect of a price change is described by which of the following statements? A) When the price of canning jars falls, consumers have more real income with the same nominal income and will buy more canning jars. B) When the price of canning jars falls, consumers will substitute these lower-priced canning jars for higher-priced goods. C) The substitution effect is the change in the number of canning jars purchased when the price of spatulas changes. D) The substitution effect shows how a change in income will affect the quantity of a good purchased.

B

There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, you would expect the demand for: A) medical exams to be more price-elastic. B) Bayer aspirin to be more price-elastic. C) Bayer aspirin to be more price-inelastic. D) the two to be equally price-elastic.

B

Which of the following is true about marginal utility? a. Marginal utility is total utility divided by the total quantity consumed. b. Marginal utility is the change in total utility derived from a one-unit change in the consumption of a good c. Marginal utility is the total satisfaction that a consumer experiences from all the units of a good or service consumed. d. All of the above are true

B

Which of the following tends to make demand for a good more elastic? a. A reduction in the number of substitutes for the good b. Consumers have a long time to adjust to a price change c. The amount spent on the good is a small proportion of a consumer's budget. d. The good is broadly defined.

B

You manage a popular nightclub and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that: a. your bouncer thinks the demand for drinks is elastic, while your bartender thinks the demand for drinks is inelastic. b. your bouncer thinks the demand for drinks is inelastic, while your bartender thinks the demand for drinks is elastic. c. both the bouncer and bartender think the demand for drinks is elastic. d. both the bouncer and bartender think the demand for drinks is inelastic

B

You own a small deli that sells sandwiches, salads, and soup to the community. Which of the following is an implicit cost of doing business? a. Wages paid to part-time employees b. The job offer you did not accept at a local catering service c. Bread, meat, and vegetables used to produce the items on your menu d. Your monthly utility bill

B

Your marginal utility of a fourth pancake is 100 and your marginal utility of a second cup of coffee is 300. If you eat the fourth pancake, which of the following must be true? a. You are irrational b. The price of a pancake is less than one third the price of a cup of coffee c. The price of a pancake is more than three times the price of coffee d. The prices of pancakes and cups of coffee must be equal

B

A "how much" decision is best made by comparing: a. the explicit costs of an action to the implicit costs of that action b. the accounting profit of an action to the economic profit of that action c. the marginal benefits of an action to the marginal costs of that action d. the present value of an action to the net present value of that action

C

A firm experiences diminishing marginal returns because a. all resources are variable b. all resources are fixed c. at least one input in production is fixed d. people "learn by doing"

C

A firm's accounting profit is equal to the difference between its total revenue and its a. variable costs b. fixed costs c. explicit costs d. implicit costs

C

A firm's owners have invested $100 million in the company. This money could have earned a return of 20 percent per year if invested in the stock market. The firm's annual implicit cost is a. $100 million b. $80 million c. $20 million d. zero

C

A local restaurant has estimated that the price elasticity of demand for meals is equal to 2. If the restaurant increases menu prices by 5%, they can expect the number of customers to decrease by ________and total revenue to ________. A) 10%; increase B) 5%; stay constant C) 10%; fall D) 2.5%; fall

C

Basil is maximizing total utility from eating tea and crumpets. If the marginal utility of the last crumpet was 32 utils and the prices of tea and crumpets are $4 and $8, respectively, what was the marginal utility of the Basil's last cup of tea? a. 2 utils b. 12 utils c. 16 utils d. 128 utils

C

Demand is more elastic: a. in the short run than in the long run b. for necessities than for luxuries c. for goods with many substitutes than for goods with only a few d. for cheap goods than for expensive goods

C

Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. Based on this data, the price elasticity of demand for gas is: A) 5. B) 2. C) 0.2. D) 0.5.

C

If a university decreases the price of tickets to football games to collect more revenue, it is assuming that the demand for tickets is: A) unstable. B) price-inelastic. C) price-elastic. D) price unit-elastic.

C

If the price of a good is 0, a consumer will: A. consume all units that have positive total utility B. consume an infinite quantity C. consume all units with positive marginal utility D. consume until total utility becomes 0

C

In the short run: A) all inputs are fixed. B) all inputs are variable. C) some inputs are fixed and some inputs are variable. D) all costs are variable.

C

Jacquelyn is a student at a major state university. Which of the following is not an example of an explicit cost of her attending college? A) tuition B) textbooks C) the salary that she could have earned working full-time D) computer lab fees

C

Marginal analysis is relevant for: A) both "either-or" and "how much" decisions. B) only "either-or" decisions. C) only "how much" decisions. D) only those situations where the time value of money is involved.

C

Newspaper vending machines that allow customers access to the whole stack of newspapers illustrate that newspaper publishers believe a. the average utility of two identical papers is zero or less b. the total utility from two identical newspapers is zero or less c. the marginal utility of a second identical newspaper is zero or less d. the marginal utility of a second identical newspaper is greater than the marginal utility of the first newspaper

C

Suppose Ernie gives up his job as a financial advisor for P.E.T.S., at which he earned $30,000 per year, to open up a store selling spot remover to Dalmatians. He invested $10,000 in the new store, which had been in savings earning 5 percent interest. This year's revenues in the new business were $50,000, and explicit costs were $10,000. Calculate Ernie's accounting profit. a. $10,000 b. $20,000 c. $40,000 d. $9,500

C

Suppose Zoe uses her income to buy beer and potato chips. Zoe's marginal utility of consuming beer is 20 utils and the marginal utility of consuming potato chips is 10 utils. The price of beer is $4 and the price of potato chips is $1. Zoe will maximize her utility by a. doing nothing b. buying more beer and less potato chips c. buying less beer and more potato chips d. buying less of both goods

C

Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the store earned an economic profit of $50,000 last year, this means that the store's accounting profit equaled: A) $10,000. B) $50,000. C) $100,000. D) $200,000.

C

Suppose you have a monthly income $200 to spend on food while at college. Suppose pizza is $4 and a ham sandwich is $2. Which of the following consumption bundles is part of your consumption possibilities? A. 40 pizzas; 50 sandwiches B. 15 pizzas; 80 sandwiches C. 20 pizzas; 60 sandwiches D. 10 pizzas; 100 sandwiches.

C

The ________ is the increase in output that is produced when hiring an additional worker. A) average product B) total product C) marginal product D) marginal cost

C

Which of the following illustrates the law of diminishing marginal utility? a. The marginal utility of Diane's second Coke is greater than the marginal utility of her third pretzel, other things constant. b. The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's third pretzel, other things constant. c. The marginal utility of Diane's second Coke is greater than the marginal utility of her third Coke, other things constant. d. The total utility of one Coke is greater than the total utility of two Cokes, other things constant.

C

Which of the following is a fixed input for the Mosinee Brewing Company? a. Hops b. Water c. Storage tanks d. Barley

C

Which of the following is a short-run adjustment? a. Toyota builds an automobile plant in Kentucky. b. Faced with increasing enrollment, a private college builds a new School of Business building. c. People's Bank hires two new tellers to meet increased demand for customer services d. None of the above represents a short-run adjustment

C

A perfectly inelastic demand curve implies that a. the buyers decrease their purchases when the price rises b. the buyers respond substantially to an increase in price c. the buyers increase their purchases when price falls d. the buyers purchase the same amount when the price rises or falls

D

A utility-maximizing consumer who consumes two goods, x and y, would allocate her budget in such a way that: a. MUX = MUY b. MUX > MUY c. MUX/PX > MUY/PY d. MUX/PX = MUY/PY

D

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his explicit costs? a. $26,000 b. $66,000 c. $78,000 d. $52,000 e. $72,000

D

After reading half of a novel, Phil decides he doesn't like the book. If he is rational he will a. finish reading the book since he is half done b. finish reading the book if he bought the book but not if it is a library book c. finish reading the book if it is library book but not if he paid for the book d. stop reading the book

D

Economists assume that the goal of firms is to: a. maximize the quantity sold b. maximize total revenue c. minimize total costs d. maximize economic profit

D

If a good is offered to you free of charge, then you a. never stop consuming it b. stop consuming it when its marginal utility begins to fall c. stop consuming it when its marginal utility begins to increase d. stop consuming it when its marginal utility equals 0 or less e. stop consuming it when its total utility equals zero

D

If the price elasticity of demand for bottled water is estimated to be equal to 0.5 (in absolute value) then a 10% increase in price will bring about a ____ decrease in quantity demanded: a. 20% b. 10% c. 50% d. 5%

D

If the price of soda increases from $2.00 to $3.00 and quantity demanded falls from 100 to 50 cans, the price elasticity of demand is: a. 0.4 or 2/5 b. 0.67 or 2/3 c. 0.6 or 3/5 d. 1.67 or 5/3

D

Suppose Basil is maximizing his utility from consuming tea and crumpets. If the marginal utility of the last cup of tea was 24 units of utility and that of his last crumpet was 6 units of utility, which of the following is true? a. The price of tea is six times the price of crumpets b. The price of crumpets is four times the price of tea c. The price of tea and crumpets are equal d. The price of tea is four times the price of crumpets

D

Suppose that when the price per case of Bullmoose beer rises from $14 to $16, the quantity demanded falls from 300 to 200 cases per week. Using the midpoint formula, what is the price elasticity of demand (in absolute value)? a. 0.33 b. 0.032 c. 2 d. 3

D

The demand for salt is probably more price inelastic than the demand for potatoes because a. potatoes require salt but salt does not require potatoes b. salt will keep longer than potatoes before spoiling c. there is so much potential salt in the ocean d. salt is cheap relative to most users' incomes and has few good substitutes

D

The income effect of a price change refers to: a. the change in demand when consumer income changes b. the change in quantity demand from a price change, making the good more or less expensive relative to other goods c. the change in demand that occurs when both income and price change d. the change in quantity demanded from a price change that impacts purchasing power

D

The price elasticity of demand is computed as the percentage change in the: A) quantity demanded divided by the percentage change in the quantity supplied. B) price divided by the percentage change in the quantity demanded. C) quantity demanded divided by the percentage change in income. D) quantity demanded divided by the percentage change in the price.

D

The price elasticity of demand measures: a. whether a price increase causes quantity demanded to increase or decrease b. whether a price decrease causes quantity demanded to increase or decrease c. whether a price increases causes demand to increase or decrease d. the responsiveness of consumers to a change in price

D

The short run is a time period a. equal to or less than six months b. during which all inputs can be varied c. during which all inputs are fixed d. during which at least one input is fixed

D