Microeconomics Quizzes
Suppose that the equilibrium price of a mountain bike is $250. The government decides that people have a right to affordable mountain biking. To protect this new right, government passes a law setting a maximum price of $150 for a bike. As a result of the legislation, there will be
a smaller number of mountain bikes sold than before the legislation
Farm price supports are an example of a price floor in the market for farm products. A binding price support will cause
a surplus of farm products
When solving the diamond-water paradox we notice that the marginal utility of
diamonds is greater than the marginal utility of water.
Sue likes brownies. However, Sue notices that the more brownies she eats the less satisfaction she receives from each extra brownie. We can say that Sue is experiencing ___________________ from each extra brownie.
diminishing marginal utility
The value of the marginal product curve slopes _________ due to _______________
downward, diminishing marginal product
If the "bang per buck" for land is greater than capital, and "bang per buck" for capital is greater than labor, then to obtain the right mix of resources the firm should
employ more land and capital and less labor.
Firms producing an identical product in a competitive market are producing at a level of output that maximizes profit. The current market price is $4.50 per unit and the firms are producing at a long-run average cost of $3.50 per unit. Over the long-run one should expect
entry of new firms into this market
Where there are established, well-defined private property rights, externalities will be
less prevalent
When a supplier has a limited ability to make quick adjustments to quantity supplied, the elasticity of supply is
less than 1
Which of the following is NOT considered a natural barrier?
licensing
Scarcity refers to the __________ nature of society's resources.
limited
Economics is the study of how people allocate their ________ resources to satisfy their nearly _________ wants.
limited; unlimited
In which time period is demand most elastic?
long run
Think about a country where most economic production comes from factories that create air pollution. What could be a possible trade-off of lower levels of pollution?
lower incomes
What is key to solving the diamond-water paradox?
marginal utility
By choosing to consume at the consumer optimum, consumers will
maximize their total utility
A price ceiling is a legally imposed ___________ price.
maximum
A price floor is a legally imposed ___________ price.
minimum
Price discrimination exists when a firm sells the same good at __________________ to different groups of customers.
more than one price
Which of the following is NOT an example of price discrimination at the movies?
movie genre
Which of the following is NOT an example of a public good?
national parks
Copyright laws make the digital music you buy
nonrival and excludable
If the cross-price elasticity of demand for two goods is zero, the two goods are
not related
Apartments in New York City are priced higher than those 15 miles from the city because of
of the difference between what a factor of production earns and what it could in earn in the next- best alternative
Economists use the concept of ceteris paribus to examine a change in ____________ in a model, while assuming that all other variables remain constant.
one variable
Suppose that burgers and fries are complements in consumption. If the price of fries increases
overall demand for burgers will increase
Price elasticity of supply is always positive except when supply is
perfectly inelastic
Incentives can be classified as
positive or negative, direct or indirect
The demand curve slopes downward because
prices and quantity demanded move in opposite directions
The difference between the willingness to sell a good and the price that the seller receives for it is
producer surplus
The chapter discusses how cost-benefit analysis is used to determine whether the benefits of providing a ______________ outweigh the costs.
public good
For which type of good does the textbook describe the use of cost-benefit analysis?
public goods
When consumers get the biggest bang for the buck, we say they
reached a consumer optimum
Over a longer period of time, supply becomes
relatively more elastic
Which of the following is NOT an example of a private good?
satellite television
In a competitive market, the price of the product is
set by market supply and demand
In a perfectly competitive market, the price of the product is
set by market supply and demand
If the demand for labor increases, there will be a
shortage of workers, and the equilibrium wage will rise
If the marginal utility of good 1 is 15 and its price is $3, and the marginal utility of good 2 is 12, and its price is $4, then the consumer
should increase his or her consumption of good 1
The price of a competitive firm's product is $50 per unit. The firm currently has marginal cost equal to $40. To maximize profits this firm
should increase its output
Externalities are
sometimes negative and sometimes positive
For which of the following goods would you expect demand to be the most responsive to a rise in price?
spaghetti Consumers are very responsive to a change in the price of spaghetti. Since there are many substitutes available for spaghetti, consumers will switch to something else in response to a small rise in price.
Converse, an apparel company, has been fairly successful selling denim-colored college sportswear. Lydia sees an opportunity for profit and enters the market. After producing her profit maximizing level of output, she finds that her average total cost per unit is $40, her average variable cost per unit is $30, and the market price is $35. In the short run, Lydia should
stay in business even though she is suffering a loss
Which of the following is NOT a solution to correct for negative externalities?
subsidies
If the current wage for nurses is higher than the equilibrium wage, this will create a
surplus of nurses and downward pressure on wages
Suppose the price of an iPod decreases and the price of HD TVs remains the same; what noticeable effect(s) occur(s)?
the substitution effect and real-income effect, if there is a noticeable change in purchasing power
Public goods are ___________ in the market.
underproduced
Economists use ____________ as a measure of the relative level of satisfaction when someone consumes a good or service.
utility
The supply curve for land is ordinarily
vertical
where does a monopoly operate to maximize profits?
where MR=MC
The opportunity cost of attending college is likely to be highest for a high school graduate
who is capable of playing a well-paid professional sport
Which of these is an exogenous factor?
yearly rainfall
When total utility is maximized, marginal utility will be
zero
Suppose that the equilibrium price of a mountain bike is $250. The government decides that people have a right to affordable mountain biking. To protect this new right, government passes a law setting a maximum price of $150 for a bike. As a result of the legislation, and in the absence of a black market, the price of a mountain bike will be
$150
Suppose the government decides the Big Mac is an American tradition. To recognize the value of the Big Mac, government passes legislation making it illegal to sell a Big Mac for less than $8. The equilibrium price of a Big Mac is $4. As a result of the government legislation, and in the absence of a black market, the price of a Big Mac will be
$8
The table below shows the willingness of three people to sell their tutoring services. Calculate the producer surplus for Frank (who charges $10/hour) if the price of the tutoring is $18 per hour.
$8
Suppose that demand for automobiles increases by 25% when consumers' income increases by 20%. What is the income elasticity of demand for automobiles?
1.25
Judy spent eight hours studying for an exam. Normally, she would have spent that time watching TV instead of studying. She figures she could have made a "B" after only studying four hours, but she really wanted an "A." What is Judy's marginal cost in terms of TV viewing to improve her grade from a "B" to an "A"?
4 hrs
A competitive firm maximizes profit at an output level of 500 units, market price is $24, and ATC is $24.50. At what range of AVC values for an output level of 500 would the firm choose not to shut down?
AVC < $24
An example of the tragedy of the commons would be
All of these answers are examples of the tragedy of commons.
Which of the following will cause a rightward shift in the supply curve for tobacco?
An improvement in the technology used in the production of tobacco
A natural monopoly exists when a single seller experiences ____________ average total costs than any potential competitor.
Lower
To maximize profits, firms expand output until
MR = MC
A consumer is in equilibrium when consuming two goods when which of the following holds?
MUa/ Pa = MUb/ Pb
Which of the following statements is normative?
Microeconomics is a great class.
Which of the following types of firms most closely fits the description of a competitive firm?
corn farmers
The type of demand that factors of production are said to have is
derived demand
The ______________ paradox was described by Adam Smith in 1776.
diamond-water
Which of the following firms operates as a monopoly?
A local water utility
Suppose the price of IBM computers falls from $2,500 to $2,000 and the quantity demanded increases from 10,000 to 20,000. Calculate the price elasticity of demand.
-3
Which of the following firms participates in a competitive market?
A corn farmer
According to the law of supply, what is the relationship between price and quantity supplied?
Direct
Which of the following is considered to have derived demand? I. a large Pizza Hut pizza II. an oven used to bake the pizza III. an employee of Pizza Hut
II and III
The table provided below shows how to calculate a monopoly's total revenue and marginal revenue. As price falls, total revenue initially ____________ and then ______________.
Increases, decreases
According to the law of demand, what is the relationship between price and quantity demanded?
Inverse
Consider Dirk and Lee. They are both eating pizza. Which of the following statements is true regarding their satisfaction and utility?
It is difficult to determine because utility is subjective.
After teaching a class on game theory, your instructor announces that if every student skips the last question on the next exam, everyone will receive full credit for that question. However, if one or more students answer the last question, all responses will be graded and those who skip the question will get a zero. Assume that there is no chance for you and your classmates to discuss the situation before taking the exam. Will the entire class skip the last question?
No, because the dominant strategy of the best-prepared students is to answer the last question.
Monopolies choose their profit maximizing:
Output level and Price
Flour is a factor of production of cupcakes. How will an increase in the price of flour affect the market for cupcakes?
Overall supply will decrease
Monopoly power measures the ability to set the ________ for a good.
Price
What must happen to the market price in order for a shortage to be eliminated?
Price must rise
When a market is in equilibrium, which of the following is true?
Quantity supplied is equal to quantity demanded
Which of the following is NOT characteristic of a market economy?
Significant government intervention
What would we have to assume before constructing a society's production possibilities frontier?
That the quantity of resources remains constant, That the technology available for use in production remains constant.
Which of the following conditions must be met for a single seller to become a monopolist?
The firm must have something unique to sell, the firm must have a way to prevent potential competitors from entering the market.
Which of the following is an example of normative analysis?
The multimillion dollar B-1 bombers are a waste of tax money.
Which of the following statements refers to a macroeconomic issue?
The national unemployment rate is currently 7.7%.
A change in which of the following will cause a change in the quantity demanded of coffee?
The price of coffee
A change in which of the following will cause a change in the quantity supplied of coffee?
The price of coffee
You own a pizza restaurant that employs workers at the minimum wage. Suppose the minimum wage increases. What is the likely result?
The quantity of labor demanded falls
Which of the following statements is normative?
There should be unemployment benefits for farmers who lose their farms.
The supply curve is _______________ driven by the law of supply.
Upward sloping
Which of the following would be considered a monopsony in the labor market?
a company town
If you were willing to pay $3.05 for a gallon of milk purchased at the grocery store but were required to pay only $2.05, you have gained
a consumer surplus amounting to $1.00
Compared to perfect competition, monopolies charge
a higher price
Rent control is an example of
a price ceiling
Suppose the government decides the Big Mac is an American tradition. To recognize the value of the Big Mac, government passes legislation making it illegal to sell a Big Mac for less than $8. The equilibrium price of a Big Mac is $4. This legislation is an example of
a price floor
Firms producing an identical product in a perfectly competitive market are producing at a quantity that maximizes profit. The current market price is $4.50 per unit, and the firms are producing at a long-run average cost of $3.50 per unit. Firms in this market experience
a profit
Suppose that the market equilibrium price for a good is $1. A nonbinding price ceiling in this market will result in a price set at
above $1
In order for a price floor to be binding, it must be set
above the equilibrium price
Suppose that the equilibrium price of a mountain bike is $250. The government decides that people have a right to affordable mountain biking. To protect this new right, government passes a law setting a maximum price of $150 for a bike. As a result of the legislation, there will be
an excess demand for mountain bikes
Suppose the government decides the Big Mac is an American tradition. To recognize the value of the Big Mac, government passes legislation making it illegal to sell a Big Mac for less than $8. The equilibrium price of a Big Mac is $4. As a result of the government legislation, there will be
an excess supply of Big Macs
If income increases by 10% and the demand for tuna decreases by 20%, then tuna is a(n)
an inferior good
In an imperfect market, individual firms
are able to influence the price of their product
In order for a price ceiling to be binding, it must be set
below the equilibrium price
Which of the following conditions must be met for price discrimination to occur?
both distinguishing groups of buyers with different price elasticities of demand and preventing resale
Monopolies lead to
both rent seeking and deadweight loss
Suppose that Coca Cola and Pepsi are substitutes in consumption. If the price of Coca Cola decreases, then
both the equilibrium price and the quantity of Pepsi demanded will decrease
Over the long run, a monopolist
can continue to make economic profits if it can maintain a monopoly and keep competitors from entering the market
Suppose that at the current level of production, the price of a monopolist's product is equal to $15 per unit. Marginal revenue is equal to $10 per unit, and marginal cost is equal to $15 per unit. This monopoly
can increase its profit by producing and selling fewer units of its product.
Demand for a good is elastic if quantity demanded ________________ in response to a price change.
changes significantly
The difference between the willingness to pay for a good and the price that is paid to get it is
consumer surplus
Profits when a competitive firm shuts down are -$7,250 and -$250 when the firm continues to produce. This firm will minimize losses by
continuing to produce
Suppose that the equilibrium price of a mountain bike is $250. The government decides that people have a right to affordable mountain biking. To protect this new right, government passes a law setting a maximum price of $150 for a bike. As a result of the legislation, the quality of mountain bikes will most likely
decline
If competitive firms experience a loss, over the long run there will be a(n)
decrease in market supply to increase the market price
What effect would tougher immigration laws have on labor supply?
decrease the supply of labor
A shift in the labor supply curve can be caused by
demographic changes, immigration, migration, and other employment opportunities
Jewell attends a wedding reception where dinner is served. For her entrée, she has the option of steak, chicken, or pasta. If she chooses the pasta, then her opportunity cost is
either the chicken or the steak—whichever would have been her second choice to the pasta
For a perfectly competitive firm, marginal revenue is
equal to price
Suppose pasta salad is a normal good. If the price of pasta (a major ingredient in pasta salad) increases and income also increases, the
equilibrium quantity of pasta salad may either increase or decrease and the equilibrium price of pasta salad will increase.
Suppose the government decides the Big Mac is an American tradition. To recognize the value of the Big Mac, government passes legislation making it illegal sell a Big Mac for less than $8. The equilibrium price of a Big Mac is $4. As a result of the government legislation, there will be
fewer Big Macs bought and sold than before
Compared to perfect competition, monopoly results in
fewer units produced and sold.
A supply curve that has a __________ slope represents a more elastic supply curve.
flatter
In the case of negative externalities, social costs are ____________ internal costs.
greater than
The consumer surplus for water is
greater than that for diamonds because water is essential.
The income elasticity of demand coefficient is _____________ for normal goods.
greater than zero
Opportunity cost is the ______________ alternative that must be sacrificed in order to get something else.
highest-valued
A firm that wants to employ workers should
hire workers as long as the wage is less than the value of the marginal product
The long-run market supply curve is
horizontal at the market price
For which of the following goods is supply the most responsive to a change in price?
hot dog vendor a hot dog vendor can most easily respond to changes in price. If prices go up, the vendor can quickly add another cart to increase the quantity supplied. If prices go down, the hot dog vendor can quickly remove a cart to decrease the quantity of hot dogs supplied.
Suppose a consumer consumes only diamonds and water, and the price of diamonds increases. All else being equal, a consumer's marginal utility for diamonds
increases, and the marginal utility for water decreases.
