Microeconomics Practice Exam 1

________ marginal opportunity cost implies that the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts.

Increasing

Lucinda buys a new GPS system for $250. She receives consumer surplus of $75 from the purchase. How much does Lucinda value her GPS system?

$325

________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.

Competition

Let D= demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?

S decreases, D no change, P increases, Q decreases

How are the fundamental economic decisions determined in North Korea?

The government decides because North Korea is a centrally planned economy.

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars. What fundamental economic question are they addressing by making this range of products?

What to produce?

Which of the following would shift the supply curve for MP3 players to the right?

a decrease in the price of an input used to produce MP3 players

All of the following are critical functions of the government in facilitating the operation of a market economy except

ensuring an equal distribution of income to all citizens.

Microeconomics is the study of

how households and firms make choices.

Suppose that when the price of raspberries increases, Lonnie increases his purchases of papayas. To Lonnie,

raspberries and papayas are substitutes.

By definition, economics is the study of

the choices people make to attain their goals, given their scarce resources.

In a competitive market equilibrium

the marginal benefit equals the marginal cost of the last unit sold.

One would speak of a change in the quantity of a good supplied, rather than a change in supply, if

the price of the good changes.

A change in all of the following variables will change the market demand for a product except

the price of the product.

Marginal analysis involves undertaking an activity

until its marginal benefits equal marginal costs.

Making optimal decisions "at the margin" requires

weighing the costs and benefits of a decision before deciding if it should be pursued.