Economics final exam
Which of the following is an example of an oligopoly practicing product differentiation?
A car manufacturing company uses advertising to create an upscale image for its product
Which of the following will cause movement along the supply curve?
A change in the price of the good
Why is consistent economic growth an aspirational goal for all economies?
A consistent growth rate can increase the GDP of a country significantly due to the power of compounding.
GDP is a useful metric in evaluating __________.
A country's growth and comparative growth trajectories across countries.
If the Consumer Price Index in a country was 186.5 at the end of last year and 179.8 at the end of this year, the country experienced which of the following?
A deflation rate of 3.4 percent
How does a financial market influence economic growth?
A financial market helps promote liquidity in the economy.
Which of the following situations has increasing returns to scale?
A larger cell phone provider can serve more customers per cell tower than a smaller provider
Which of the following voting systems is free from the Condorcet paradox?
A majority rules system with only two candidates
Which of the following statements about price floors is correct?
A price floor limits how low a price can be charged for a product or service.
Which of the following scenarios will necessarily result in a producer surplus?
A producer sells a computer for $600, but was willing to take $400 for it.
Which of the following scenarios most closely resembles the tragedy of the commons?
A river becomes extremely polluted from factory runoff
A family cannot afford food, water, housing, or sanitation. This situation is best described by which of the following?
Absolute poverty
Which of the following is NOT a reason for market failure?
Abundance of public goods
Who is credited with being the Founding Father of Economics and wrote The Wealth of Nations ?
Adam Smith
The program serves a defined population.
Advanced healthcare coverage
Which of the following is NOT a reason that a consumer may be more likely to purchase a product that is heavily advertised?
Advertising is often more helpful than personal experience when determining the quality of a good.
Which of the following is NOT an item that induces price discrimination?
Airline tickets
Which of the following products are likely to exhibit network externalities?
All of the responses.
Which of the following statements is true about total factor productivity?
All of the statements.
In the Prisoner's Dilemma, the outcome in which both players defect is _________.
All of these answers
Monopolies are economically undesireable because they ___________.
All of these answers
What is a consequence of a rise in the CPI?
All of these answers
Which of the following could shift a firm's labor demand curve?
All of these answers
Which of the following inputs is NOT considered variable in the short run?
All of these answers
Which of the following is a characteristic of monopolistic competition?
All of these answers
Which of the following is a form of collusion among oligopolies?
All of these answers
Which of the following situations would contribute to economic profit earned in uncompetitive markets?
All of these answers
Which of these is a problem with government regulation of natural monopolies?
All of these answers
Why are price controls often used in the electricity distribution industry?
All of these answers
Many argue that the existence of brands are beneficial to consumers. Which of the following arguments supports this view?
All of these answers.
Which of the following is a source of product differentiation?
All of these answers.
Which of the following statements about utility is true?
All of these answers.
Which of these determines the location of the production possibilities frontier?
All these answers
What is the theory of utility based on?
An assumption
Which of the following is an example of an individual who is not involved in a transaction but is bearing some cost?
An individual exposed to secondhand smoke
Which of the following statements regarding the relationship between a good's price and the quantity demanded is true?
An individual's purchasing power helps define how much of a good she wants at a given price.
Which of the following is a negative consequence of price controls?
Artificially low prices cause demand to outstrip supply, leading to shortages
Which of these is true about the backward-bending supply curve of labor theory?
At low wage levels the substitution effect dominates the income effect
Which of the following problems is NOT helped by advertising?
Brand loyalty decreasing competition among similar products.
Consider the example of used cars. The seller knows whether the car is a lemon (worth $2,000) or a cherry (worth $8,000), but they buyer does not. Why is this an example of adverse selection?
Buyers won't pay $8,000 due to the chance of a lemon, but only lemons will sell below that price
How do corrective taxes address negative externalities?
By increasing the private cost of producing a good or service generating the externality
A factory is an example of which type of factor of production?
Capital.
What describes the relationship between economic agents?
Circular flow describes how goods and service exchange hands and how economic agents are interconnected.
Which of the following is a public good?
Clean air
A worker takes a position in a dangerous area and receives hazard pay. This is an example of which of the following wage differentials?
Compensating differential
Which of the following is NOT a cause of government failure?
Consumer spending
All things being equal, when suppliers become willing to charge less, what happens to consumer surplus?
Consumer surplus increases
Which of the following is NOT a problem created by advertising?
Consumers' lack of information about a product's price or quality.
What is the relationship between aggregate demand and consumption?
Consumption influences aggregate demand.
Which of the following is a list of the components of GDP?
Consumption, government expenditure, investment and net exports
Assume the price of a normal good falls. Which of the following is true?
Demand for the good will rise due to the income effect and the substitution effect
Factory A is able to produce 1,000 units of output at a cost of $10,000 and 2,000 units of output for $22,000. What is Factory A experiencing?
Diminishing returns to scale
Which of the following lists the three main properties of indifference curve?
Downward sloping, convex to the origin, and do not intersect
Firms in an oligopoly can always increase their profits by colluding and acting as a monopoly. Why does this strategy often fail?
Each firm can make itself better off by being the first to defect and increase production
In the classic prisoner's dilemma, the unique equilibrium occurs when both players betray one another. Why do rational players choose to defect?
Each player will get a better outcome by defecting, regardless of the other player's decision
WHERE can economic theory be applied?
Economic theory and analysis may be applied throughout society, including business, finance, health care, and government.
Which of the following best explains the role of mathematics in accomplishing the goals of the study of economics?
Economics is a social science that assesses the relationship between the consumption and production of goods and services in an environment of finite resources.
Why is the study of economics relevant?
Economics is the scientific study of the way in which humans make choices about production, consumption and wealth when faced with scarce resources.
Which of the following are variable costs?
Employee wages and raw materials
In the long run, which one of the following is true about monopolistic competition in the long run?
Firms cannot gain positive economic profit
Total cost is equal to ___________.
Fixed cost plus variable cost
If a worker chooses to work less when the wage rate rises, leisure is a(n) ___________.
Giffen good
A measure of income distribution is:
Gini Index
Which of the following best describes a cost-push inflation scenario?
Global wheat supplies are destroyed, and wheat is a necessary input for toaster pastries
Which of the following is an issue addressed by behavioral economics?
How consumers with bounded rationality make decisions.
Which of the following is NOT a factor in the principal-agent problem?
Incentives for the principal
Disposable income can be defined as:
Income left after deducting taxes and government fees.
Which of the following is not a potential consequence of increased resource demand?
Increased marginal productivity.
Suppose you own a profitable tailoring company that hires two workers who can make ten shirts per day combined. You decide to double the amount of capital and labor and see that the total number of shirts produced each day has increased to 22. This implies that your company is exhibiting __________.
Increasing returns to scale
What has been the greatest cause of economic inequality in recent years?
Inequality in wages
A worker begins his career at a firm as a clerk and works his way up to become president of the firm. This is best described as what kind of mobility?
Intragenerational mobility
Which of the following is an advantage of the GDP deflator over the CPI?
It does not suffer from substitution bias
A warehouse adopts a new technological innovation, and the wages and quantity of workers at the warehouse increase. What must be true about the technology?
It increases the productivity of labor
Which of the following is an advantage of the CPI over the GDP deflator?
It is a more accurate reflection of the changes in the cost of living
Which of the following are the two characteristics of a private good?
It is excludable and rival.
What is a likely consequence for a member of OPEC if it decides to defect and produce more oil than the amount set by the cartel?
It will make a higher profit today, but face lower prices and lower profits in the long run
Which of the following is NOT true about long run costs?
Long run costs have fixed factors of production.
The Gini index is calculated using ratios of areas derived from what curve?
Lorenz curve
In the short term, would you expect a non-durable good's price elasticity of demand to be higher or lower than it is in the long term?
Lower, because consumers are more likely to switch to other substitutes over the long term
For which type of good would you expect the price elasticity of demand to be highest?
Luxury goods
A competitive employer will hire additional labor as long as:
MRPL exceeds the wage rate
According to the Bertrand model, what is the ultimate outcome of duopoly competition?
Market price equals marginal cost, and the result is the same as perfect competition
Which of these individuals was NOT an influential founder of economics in the 19th Century?
Milton Friedman
Which of the following is NOT true about monopoly production?
Monopolies can choose any combination of output and price
Which of the following is NOT true about how monopolies maximize profit?
Monopolies can choose any combination of output and quantity
Will an industry with increasing returns to scale be more or less likely to be an oligopoly than an industry with decreasing returns to scale?
More likely, because it is more difficult for small competitors to enter the market
Tom has $10. The cost of each pen is $2, while the cost of a pencil is $1. Tom will purchase the two goods to maximize utility. Tom buys 3 pens and 4 pencils. If the price of pens were to fall to $1 each, Tom would buy _______.
More pens.
A _____ graph shows the maximum production level for one commodity for any production level of the other commodity.
PPF
"Because firms in this type of market structure have no market power, they are price-takers and cannot affect the market price for their goods." What market structure does this statement describe?
Perfect competition
Which of the following is NOT a common cause of deadweight loss?
Perfect markets
What is the price-to-quantity relationship typically depicted in a supply curve?
Positive correlation between price and quantity supplied.
We can expect the cross price elasticity of demand between tea and coffee to be ________.
Positive, indicating substitute goods
Which of the following is NOT a drawback to measuring poverty via a poverty line?
Poverty lines cannot derive absolute value within a system
Why is perfectly inelastic supply is depicted as a vertical line?
Price can vary while quantity stays at the same level
Which of the following is an informal method of collusion that is generally exempt from legal repercussions?
Price leadership
A good that is excludable and rival would belong to which category of goods?
Private goods
If supply falls and demand remains constant, what happens to the market equilibrium?
Quantity and price both rise
Electricity is a good with few or no close substitutes. What would you expect about the price elasticity of demand for electricity?
Relatively inelastic
The case of De Beers offers an example of what type of barrier to entry?
Resource control
The steps economists follow in order to study data and build principles (including Identify the Problem, Gather Data, and Form a Hypothesis) is called:
Scientific Method
Which of the following is not a requirement of cost-benefit analysis?
Selecting the least expensive project.
The biases in the CPI can overstate inflation, because they do which of the following?
Tend to omit quality improvements, consumer response to changes in price, and new goods and services
Which one of these statements is NOT correct?
The National Bureau of Economic Research predicts economic cycles.
What is macroeconomics?
The analysis of the interactions between agents in the economy as a whole.
The distinction between real GDP and nominal GDP is important to determine which of the following?
The change in real production
An expansion in the business cycle ends when which of the following occurs?
The economy hits a trough and enters into a recession.
Which of the following is NOT a criteria for price discrimination?
The firm must be able to recognize differences in supply.
A town provides public transportation in the form of 350 bicycles. The bicycles are placed around town and free for anyone to use. However, within four days all of the bicycles are stolen for private use. This is an example of:
The free-rider problem
What distinguishes a government-granted monopoly from a government monopoly?
The holder of the government-granted monopoly is a private firm
Which of the following makes it difficult for firms to cooperate in an oligopoly market?
The incentive to deflect
Which of the following is an example of government regulation?
The legal prohibition of an act with negative externalities
Which of these is NOT a factor that affects demand?
The market structure
What is a primary characteristic of a market system?
The market system is competitive and balances seller and consumer interests
Which of the following does NOT result from granting a temporary monopoly to a firm or individual through a patent?
The patent provides an incentive to produce original creative works.
Where is equilibrium located on a supply/demand chart?
The point where the demand line and the supply line intersect.
Under which conditions will a buyer most likely bear the full burden of a tax imposed on a product?
The price elasticity of demand of the product is 0
Which of the following would cause substitution bias?
The price of HP computers declines while the price of Dell computers remains the same
The relationship between the quantity of inputs used and the quantity of output is known as _________.
The production function.
When oligopoly firms collude to increase profits, what happens to the market equilibrium?
The quantity supplied by the two firms goes down and the price goes up
If the market price decreases for a good or service, holding all else constant, what happens to supply?
The supply curve remains unchanged; quantity will adjust as a movement along the supply curve.
A payroll tax will fall more heavily upon the employee (producer) than the employer (consumer) if which of the following is true?
The supply of labor is more inelastic than the demand for labor
The consumer surplus that an individual derives from a product is different for different consumers for which of the following reasons?
The utility of an item is perceived differently by every consumer
Which type of worker will gain proportionally more of the total income?
The workers demanded more because of the difference between marginal productivity and marginal cost.
Which inequality index measures the distributional entropy of resources across the population?
Theil index
Which of these statements is NOT true about oligopolies?
They always act independently
Why do individuals free ride?
They are able to benefit from the public good without paying for it.
How are the supply schedule and supply curve similar?
They provide the same information
Complete the sentence with the most suitable pairs of words: (1) is the only sustainable way to consume outside the PPF curve and (2) allows us to shift the PPF curve outward in the long run.
Trade (1); technology (2)
Why is the Coase theorem often inapplicable to real world situations?
Transaction costs are rarely low
Which of these variables has a negative relationship with GDP growth?
Unemployment
Assume a widget firm decides to raise prices by 10% and then sees its revenue rise by 5%. The demand for widgets must be ______________.
Unit elastic
Which of the following statements is NOT true of firms in a monopolistically competitive market in the short run?
Unlike a true monopoly, firms maximize profits at the point where MR=MC
When is it appropriate for a government to provide a subsidy?
When a transaction has positive externalities
At what point does a monopolistic competitive firm stop making economic profit?
When the demand curve and average total cost curve are tangent
When is a merger between two companies good for competition?
When they do not gain an excessive market share
If the price elasticity of demand for a good is relatively elastic, then ___________.
a change in the price causes a large change in quantity demanded
A government requires that its citizens pay 20 percent on all annual income regardless of what they earn. This is an example of ____.
a direct, proportional tax.
The production function gives the relationship between:
a given combination of inputs and all possible levels of output
Economic costs include _______________.
accounting costs plus opportunity costs
The law of diminishing returns states that ______________.
adding more of one factor of production eventually yields smaller increases in output
The process by which the price and quantity of goods or services in a given market is altered due to one party having information that the other party cannot have at reasonable cost is:
adverse selection
National income provides an indication of _______________
all of the answers
A consumer may choose to consume at a point that falls ___________.
anywhere on or below the budget line
Taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance; the profit made between price differences is:
arbitrage
An excise tax is ____________.
charged based on the volume or number of things being sold
A model of market economy that shows the flow of dollars between households and firms is a/an:
circular flow
Which type of good is excludable and non-rivalrous?
club goods
An incentive when a promise of some sort of punishment if the wrong decision is made is a/an ______________ incentive.
coercive
Raw materials, agricultural and other primary products as objects of large-scale trading in specialized exchanges is a:
commodity
Which type of good is non-excludable and rivalrous?
common goods
In the Cournot model of duopoly competition, firms __________.
compete on quantity and not price
Fill in the blank. The gains from trade enables _______________ the production possibility frontier.
consumption outside
A graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price is a:
demand curve
Making good, thorough, or careful use of resources; not consuming extra. Especially, making good use of time or energy is considered:
efficient
A measure of the amount of information and noise present in a signal is:
entropy
Business cycles typically follow this pattern ________________.
expansion, peak, contraction, trough.
An impact, positive or negative, on any party not involved in a given economic transaction or act is a/an:
externality
The circular flow diagram illustrates the exchange between __________.
firms and households
Government policy that attempts to influence the direction of the economy through changes in government spending or taxes is:
fiscal policy
Using a collection of anecdotes and stereotypes that make up the mental and emotional filters that individuals rely on to understand and respond to events is:
framing
A good that is perfectly elastic will have a ___________.
horizontal supply curve
Something that motivates an individual to perform an action is a/an:
incentive
The work done by human beings to create a manufactured output is:
labor
A good for which demand increases more quickly than income is a _______________.
luxury good
The additional cost from taking a course of action is a/an:
marginal cost
Monopolies choose to produce the quantity of output at which _________.
marginal revenue equals marginal cost
A commodity which is judged that an individual or society should have on the basis of some concept of need, rather than ability and willingness to pay is a:
merit good
That field of study that deals with the small-scale activities such as that of the individual or company.
microeconomics
____________ examines the behavior individual consumers and firms within the market, including assessment of the role of preferences and constraints.
microeconomics
If a worker chooses to work more when the wage rate rises, leisure is a(n) ___________.
ordinary good
Which of the following must be true when a monopoly is maximizing profit?
p(q)+qp'(q)=c'(q)
Imagine an indifference curve for two goods that is a straight line with the same x- and y-intercepts. The two goods are __________.
perfect substitutes
The threshold of poverty, below which one's income does not cover necessities:
poverty line
The quantity of payment or compensation given by one party to another in return for goods or services is:
price
A government-imposed price control or limit on how high a price is charged for a product is a:
price ceiling
A numerical measure of the responsiveness of the quantity supplied of a product to a change in the price of the product alone is:
price elasticity of supply
A mandated minimum price for a product in a market is a:
price floor
Competitive firms are __________.
price takers who choose output levels but not prices
A price ceiling will typically cause ____________.
prices and quantity supplied that are too low
Which type of good is excludable and rivalrous?
private goods
The amount that producers benefit by selling at a market price that is higher than the lowest price at which they would be willing to sell is a/an:
producer surplus
The use of modern economic tools to study problems that traditionally are in the province of political science is:
public choice theory
A good that is both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others is a:
public good
Which type of good is non-excludable and non-rivalrous?
public goods
The amount of goods and services that can be bought with a unit of currency or by consumers is:
purchasing power
Collusion takes place when __________.
rival companies cooperate for their mutual benefit
The downward slope of a monopolistically competitive market's demand curve signifies ____.
that firms in the industry have a degree of market power.
The production possibilities frontier illustrates ___________.
the different combinations of outputs that can be produced by an economy
Moral hazard occurs when _________.
the entity that makes decisions about what risks to take is not the entity that bears the costs
According to economic theory, wages are correlated with _____________.
the marginal revenue product of labor
The price elasticity of demand measures the responsiveness of _____________.
the quantity demanded of a good to a change in its price
What is a cost that changes with the change in volume of activity of an organization?
variable cost
In order to maximize possible utility, consumers will consume to a point that lies ____________.
where the indifference curve is tangent to the budget line
5 each. With 20 workers the firm produces 80 boxes an hour, and with 21 workers it produces 82 boxes an hour. If the firm has 21 workers at the competitive equilibrium, what is the MRPL and what is the wage rate?
$10; $10
On a demand and supply curve graph, consumer surplus is found (1)____ and (2)____. Producer surplus is found (3)____ and (4)____.
(1) under the demand curve; (2) above equilibrium price; (3) above the supply curve; (4) under equilibrium price
Assume a pizza costs $10. When the price increases to $12, demand falls 10%. What is the own-price elasticity of demand? Note: in economics, elasticity is generally reported as a positive number even when it is negative.
0.5
At equilibrium, an additional unit of capital increases output by 30 and costs $300. If the wage rate is $20/hour, what is the marginal product of labor?
2 units of output
Suppose GDP was 10 trillion in 2000 (in 2000 dollars) and 15 trillion in 2010 (in 2010 dollars). If the country experienced 20% inflation over those ten years, what was percent increase in real GDP?
25%
Imagine that a newspaper that employs five journalists is able to publish 50 articles a week. It then hires a sixth journalist and its production increases to 54 articles per week. What is the marginal product of labor?
4 articles
Imagine you buy five burgers, two books, and a pair of jeans each period. In period 1, burgers are $5, books are $12, and jeans are $30. In period 2, burgers are $6, books are $14, and jeans are $28. What is the rate of inflation you face?
9%