Microeconomics Midterm #1

Flow 4

In the diagram, consumer expenditures are represented by: A. Flow 4 B. Flow 3 C. Flow 2 D. Flow 1

ratios of the marginal utility of each product purchased divided by its price are equal

A consumer who has a limited budget will maximize utility or satisfaction when the: A. ratios of the marginal utility of each product purchased divided by its price are equal B. price of each product purchased is the same C. marginal utility of each product purchased is the same D. total utility derived from each product purchased is the same

False

A firm's economic profit is usually higher than its accounting profit. True/False

Is attainable but entails some unemployment or inefficient use of society's resources

A nation can produce two products: tanks and autos. The table below is the nation's production possibilities: Given the production possibilities schedule above, a combination of 3 tanks and 350 autos: A. Illustrates the tradeoff between tanks and autos B. Is attainable but entails some unemployment or inefficient use of society's resources C. Cannot be produced by society, given its current resources and production technology D. Is not attainable because this combination is not listed in the schedule

graphs as a line parallel to the vertical axis

A perfectly inelastic demand curve: A. has a price elasticity coefficient greater than unity. B. has a price elasticity coefficient of unity throughout. C. graphs as a line parallel to the vertical axis. D. graphs as a line parallel to the horizontal axis.

Is not attainable for this nation

A point outside (to the right of) the production possibilities curve of a nation: A. Is not attainable for this nation B. Is easily attainable for this nation C. Implies that there are unemployed resources in this nation D. Implies that this nation is using its resources fully

the benefits associated with a product exceed those accruing to people who consume it

A positive externality or spillover benefit occurs when: A. product differentiation increases the variety of products available to consumers. B. the benefits associated with a product exceed those accruing to people who consume it. C. a firm produces at the P = MC output. D. economic profits are zero in the long run.

Businesses earn their revenues from households

According to the circular flow model, product markets are where: A. Households earn their money incomes B. Businesses incur their consumption expenditures to households C. Businesses acquire their inputs from households D. Businesses earn their revenues from households

the optimal project size is the one for which MB=MC

According to the marginal-cost-marginal-benefit rule: A. the optimal project size is the one for which MB=MC B. only government projects (as opposed to private projects) should be assessed by comparing marginal costs and marginal benefits C. the optimal project size is the one for which MB exceeds MC by the greatest amount D. project managers should attempt to minimize both MB and MC

Price of inputs used to make the product

All of the following are assumed to be constant when the supply curve for a product is drawn, except the: A. Price of the product B. State of technology C. Number of producers D. Price of inputs used to make the product

Movement up along the supply curve

An "increase in the quantity supplied" suggests a: A. Rightward shift of the supply curve B. Movement down along the supply curve C. Movement up along the supply curve D. Leftward shift of the supply curve

a money payment made for resources not owned by the firm itself

An explicit cost is: A. omitted when accounting profits are calculated. B. a money payment made for resources not owned by the firm itself. C. an implicit cost to the resource owner who receives that payment. D. always in excess of a resource's opportunity cost.

Drop in price and increase in quantity demanded

An improvement in production technology for a specific good will cause a(n): A. increase in demand and an increase in price B. increase in demand and a drop in price C. drop in price and increase in quantity demanded D. increase in supply and an increase in price

.33 and inelastic

Block's sells 500 bottles of perfume a month when the price is $7. A huge increase in resource costs causes price to rise to $9 and Block's only manages to sell 460 bottles of perfume. The price elasticity of demand is: A. .33 and elastic B. 3.0 and elastic C. 3.0 and inelastic D. .33 and inelastic

the price of some other product

Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in: A. the price of some other product. B. the price of that same product. C. income. D. the general price level.

the overhead costs have recently been spread over a shrinking number of buyers

Daily newspapers have been rising in price in recent years because: A. wages in the newspaper industry have risen dramatically. B. the overhead costs have recently been spread over a shrinking number of buyers. C. capital has replaced virtually all labor used to produce a newspaper. D. long-standing government subsidizes have been removed in most major cities.

The demand and supply curves don't reflect consumers' full willingness to pay for a good or service

Demand-side market failures occur when: A. The demand and supply curves don't reflect consumers' full willingness to pay for a good or service B. The demand and supply curves don't reflect the full cost of producing a good or service C. Government imposes a tax on a good or service D. A good or service is not produced because no one demands it

demand curves are downsloping

Diminishing marginal utility explains why: A. demand curves are downsloping B. supply curves are upsloping C. The substitution effect exceeds the income effect D. the income effect exceeds substitution effect

of the difficulties involved in managing and coordinating a large business enterprise

Diseconomies of scale arise primarily because: A. the short-run average total cost curve rises when marginal product is increasing. B. of the difficulties involved in managing and coordinating a large business enterprise. C. firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available. D. beyond some point marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).

a payment that must be made to obtain and retain the services of a resource

Economic cost can best be defined as: A. any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers. B. any contractual obligation to labor or material suppliers. C. a payment that must be made to obtain and retain the services of a resource. D. all costs exclusive of payments to fixed factors of production.

the short run only

Fixed costs are associate with: A. both the short run and the long run B. the long run only C. the short run only D. highly adjustable inputs such as labor

demand is elastic at high prices

For a linear demand curve: A. elasticity is constant along the curve. B. demand is elastic at low prices. C. elasticity is unity at every point on the curve. D. demand is elastic at high prices.

Interfere with the rationing function of price in a free market

Government-set price floors and price ceilings: A. Do not affect the rationing function of price in a free market B. Interfere with the rationing function of price in a free market C. Result in surpluses of products in markets where they are used D. Result in shortages of products in markets where they are used

under the demand curve and above the actual price

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle: A. under the demand curve and below the actual price B. under the demand curve and above the actual price C. above the supply curve and above the actual price D. above the supply curve and below the actual price

Apple introduced new features to entice previous buyers to purchase new models

How did Apple overcome consumers' diminishing marginal utility for iPads? A. Apple lowered the price of iPads so that previous buyers would purchase another unit. B. Apple introduced new features to entice previous buyers to purchase new models. C. Apple ignored the problem and focused solely on attracting new buyers. D. Apple was unable to overcome the problem and has faced steadily declining sales.

greater than one

If a demand for a product is elastic, the value of the price elasticity coefficient is: A. zero. B. greater than one. C. equal to one. D. less than one.

the marginal utility of the last dollar spent on each good purchased will be the same

If a rational consumer is in equilibrium, which of the following conditions will hold true? A. the marginal utility of each good purchased will be zero B. the marginal utility of the last dollar spent on each good purchased will be the same C. the total utility obtained from each good purchased will be the same D. MUa = MUb = MUc = . . . = MUn

True

In a competitive market economy firms and resource suppliers seeking to further their own self-interest will end up, as though guided by an "invisible hand," promoting the public interest. True/False

Quantities of the two products that a nation can produce

In a graph of the production possibilities curve, the two axes of the graph indicate the: A. Prices of the two products that a nation B. Maximum quantities of the two resources that a nation possesses C. Price of the products on the vertical axis, and the quantities on the horizontal D. Quantities of the two products that a nation can produce

Other variables not shown are held constant

In a graph showing the relationship between variables X and Y, ceteris paribus means that: A. X is inversely related to Y B. X is positively related to Y C. X and Y are independent D. Other variables not shown are held constant

Demand for the industry's product is decreasing

In a market system, resources will move away from an industry when: A. Profits of firms in the industry are rising B. Demand for the industry's product is decreasing C. The production of output in the industry is rising D. Profits of firms in other industries are falling

Entrepreneurs

In a market system, the task of assessing and managing the business risk of a firm is taken on by the firm's: A. Labor B. Capital suppliers C. Entrepreneurs D. Customers

Competition

In a market system, which of the following will eliminate high-cost producers, and allow only the low-cost producers to survive? A. Competition B. Money C. A sovereign government D. Specialization

People's behavior reflects rational self-interest

In analyzing human decision and action, economists assume that: A. Scarcity is more important than choice B. Costs are more important than benefits C. People's behavior reflects rational self-interest D. There are scarce resources in the economy

TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate.

In the short run: A. TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate. B. TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate. C. TVC will increase by the same absolute amount for each additional unit of output produced. D. one cannot generalize concerning the behavior of TVC as output increases.

Willing and wanting to buy

In understanding and analyzing "demand," we focus on how much of a product the buyers are: A. Willing and able to buy B. Actually buying now and in the recent past C. Willing and wanting to buy D. Able to buy with their given income

change in total utility obtained by consuming one more unit of a good

Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility obtained by consuming one more unit of a good. C. change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. D. total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

Private markets do not allocate resources in the most economically desirable way

Market failure is said to occur whenever: A. Private markets do not allocate resources in the most economically desirable way B. Prices rise. C. Some consumers who want a good do not obtain it because the price is higher than they are willing to pay. D. Government intervenes in the functioning of private markets.

noncash gifts are less efficient than cash gifts

Most economists contend that: A. noncash and cash gifts are equally efficient B. noncash gifts are more efficient than cash and gifts C. noncash gifts are less efficient than cash gifts D. government can assess consumer preferences better than can consumers themselves

Public goods

Nonrivalry and nonexcludability are the main characteristics of: A. consumption goods B. capital goods C. private goods D. public goods.

is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price

Producer surplus: A. is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price B. rises as equilibrium price falls C. is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price D. is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept

$50

Refer to the above data. If the firm closed down and produced zero units of output, its total cost would be: A. $50 B. $150 C. $0 D. $100

$124

Refer to the above data. The total cost of producing 4 units of output is: A. $137 B. $87 C. $124 D. $31

45

Refer to the above data. The value for Y is: A. 45 B. 40 C. 30 D. 25

96 utils

Refer to the above data. What level of total utility will the utility-maximizing consumer realize? A. 108 utils B. 72 utils C. 142 utils D. 96 utils

2 of X and 5 of Y

Refer to the above data. What quantities of X and Y should be purchased to maximize utility? A. 2 of X and 1 of Y B. 4 of X and 5 of Y C. 2 of X and 5 of Y D. 2 of X and 6 of Y

3 units

Refer to the above diagrams in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good rather than do without it. If the marginal cost of the optimal quantity of this public good is $10 the optimal quantity must be: A. 1 unit B. 2 units C. 3 units D. 4 units

More goods for the future than at point P

Refer to the above production possibilities curves. Curve (a) is the current curve for the economy. Focusing on curve (a), point N suggests that the economy currently produces: A. More goods for the future than at point P B. Less goods for the future than at point P C. Less goods for the present than at point P D. A combination of output that is less than its potential

$25 and 1,200 units

Refer to the above table. In this competitive market, the price and quantity will settle at: A. $10 and 2,000 units B. $15 and 1600 units C. $20 and 900 units D. $25 and 1,200 units

seventh

Refer to the data. Marginal product becomes negative with the hiring of the __________ unit of labor. A. seventh B. fourth C. sixth D. third

fourth unit

Refer to the data. Marginal utility becomes negative beginning with the: A. third unit B. second unit C. fourth unit D. first unit

$50.00

Refer to the data. Total fixed cost is: A. $6.25 B. $150.000 C. $50.00 C. $100.000

Price of corn in the market

Refer to the diagram above, which shows three supply curves for corn. A movement from point a to point b is caused by a change in the: A. Price of resources used to produce corn B. Number of corn farmers C. Price of corn in the market D. Technology of corn farming

The development of a more effective insecticide against corn rootworm

Refer to the figure above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1 to S2? A. An increase in the price of fertilizer B. A change in consumer tastes away from cornbread C. A decrease in consumer incomes, assuming corn is a normal good D. The development of a more effective insecticide against corn rootworm

utility

The ability of a good or service to satisfy wants is called: A. utility maximization B. opportunity cost C. utility D. revenue potential

long run, short run, and immediate market period respectively

The above diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the: A. immediate market period, long run, and short run respectively B. immediate market period, short run, and long run respectively C. long run, short run, and immediate market period respectively D. short run, long run, and immediate market period respectively

percentage change in quantity demanded/percentage change in price

The basic formula for the price elasticity of demand coefficient is: A. absolute decline in quantity demanded/absolute increase in price. B. percentage change in quantity demanded/percentage change in price. C. absolute decline in price/absolute increase in quantity demanded. D. percentage change in price/percentage change in quantity demanded.

Scarcity

The basic truth that underlies the study of economics is the fact that we all face: A. Death B. Taxes C. Risk D. Scarcity

law of diminishing marginal utility

The data illustrate A. law of comparative advantage B. law of diminishing marginal utility C. utility-maximizing rule D. law of increasing opportunity costs

increasing sacrifices of consumer goods

The data in the table indicate that increasing production of capital goods requires: A. increasing sacrifices of consumer goods B. decreasing sacrifices of consumer goods C. constant sacrifices of consumer goods D. no sacrifices of consumer goods

relatively price inelastic

The demand schedules for such products as eggs, bread, and electricity tend to be: A. perfectly price elastic. B. of unit price elasticity. C. relatively price inelastic. D. relatively price elastic.

the law of diminishing returns

The diagram shows the short-run average total cost curves for five different plant sizes of a from. The position of these five curves in relation to one another reflects: A. the law of diminishing returns B. The effect of fixed costs on ATC as output increases C. the law of constant costs D. economies and diseconomies of scale

quantity demanded of X/percentage change in price of Y

The formula for cross elasticity of demand is percentage change in: A. quantity demanded of X/percentage change in price of X. B. quantity demanded of X/percentage change in income. C. quantity demanded of X/percentage change in price of Y. D. price of X/percentage change in quantity demanded of Y.

beyond some point, additional units of a product will yield less and extra satisfaction to a consumer

The law of diminishing marginal utility states that: A. it will take larger and larger amounts of resources beyond some point to produce successive units of product B. beyond some point, additional units of a product will yield less and extra satisfaction to a consumer C. price must be lowered to induce firms to supply more of product D. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed

amount of time the producer has to adjust inputs in response to a price change

The main determinant of elasticity of supply is the: A. number of close substitutes for the product available to consumers. B. amount of time the producer has to adjust inputs in response to a price change. C. urgency of consumer wants for the product. D. number of uses for the product.

diminishing marginal utility

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of: A. increasing costs. B. diminishing returns. C. diminishing marginal utility D. conservation of matter and energy.

Resource Markets

The simple circular flow model shows that workers and capital-owners offer their services to firms through the: A. Product markets B. Resource markets C. Employment agencies D. Government agencies

Extra benefits resulting from the actio

What is another way of saying "marginal benefits of an action"? A. Benefits given up, once the action is taken B. Unintended gains from taking the action C. Benefits accruing to others, as a result of one's action D. Extra benefits resulting from the action

Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay

What two conditions must hold for a competitive market to produce efficient outcomes? A. Demand curves must reflect all costs of production, and supply curves must reflect consumers' full willingness to pay B. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay C. Firms must minimize production costs, and consumers must minimize total expenditures D. Firms must maximize profits, and consumers must all pay prices equal to their maximum willingness to pay

The whole demand curve or schedule

When economists speak of "demand" in a particular market, they refer to: A. How much of an item buyers want to buy at a given price B. One price-quantity combination on the demand schedule C. The whole demand curve or schedule D. One point on the demand curve

How will the goods and services be produced?

Which is one of the five fundamental questions that need to be dealt with in any economic system? A. What makes the rate of unemployment low? B. Who will be the richest group in the economy? C. How will goods and services be produced? D. How high should the prices of goods and services be?

Product taxes and subsidies

Which of the following is a determinant of supply? A. Tastes and preferences B. Price of a complementary good C. Consumer income D. Product taxes and subsidies

Government

Which of the following is assumed to be most limited in scope under a market system? A. Entrepreneurship B. Self-interest C. Competition D. Government

forgone rent from the building owned and used by Company X

Which of the following is most likely to be an implicit cost for Company X? A. forgone rent from the building owned and used by Company X B. rental payments on IBM equipment C. payments for raw materials purchased from Company Y D. transportation costs paid to a nearby trucking firm

To entice producers to offer more of a good on the market for sale, price must rise

Which statement is true about supply? A. There is an inverse relationship between price and quantity supplied B. Supply refers to the amount of inventory that sellers have in their warehouses C. As price decreases, producers are willing to put more of the good on the market for sale D. To entice producers to offer more of a good on the market for sale, price must rise

Alex may have to lower the price to convince Kara to buy a second slice

While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed and would only receive 5 units of satisfaction from consuming a second slice, at the same price. Based on this information we can conclude that: A. even if Kara buys a second slice, she will not buy a third slice. B. Kara will definitely want to buy a second slice of pizza. C. Alex may have to lower the price to convince Kara to buy a second slice. D. Kara will not eat a second slice, even if it is given to her at no charge.