Micro Exams
Which of the following is not a characteristic of pollution permits?
Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.
Refer to Figure above. The movement from point A to point B on the graph is caused by
a decrease in price.
Refer to Figure above. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be
between P1 and P2.
For a self-sufficient producer, the production possibilities frontier
is the same as the consumption possibilities frontier.
An economy's production of two goods is efficient if
it is impossible to produce more of one good without producing less of the other.
In the short run, an increase in the money supply is likely to lead to
lower unemployment and higher inflation.
Refer to Figure above. The social cost curve is above the supply curve because
it takes into account the external costs imposed on society by tobacco consumption.
The term used to describe a situation in which markets do not allocate resources efficiently is
market failure.
In a market economy, economic activity is guided by
self-interest and prices.
Rent control
serves as an example of a price ceiling.
Refer to Figure above. At a price of $10, there would be a
shortage of 600 units.
When positive externalities are present in a market
social benefits will be greater than private benefits.
The production possibilities frontier illustrates
the combinations of output that an economy can produce.
A key determinant of the price elasticity of supply is the
time horizon.
Refer to Figure above. This graph represents the tobacco industry. The socially optimal price and quantity are
$2.80 and 48 units, respectively.
Refer to Figure above. If the government imposes a price floor of $110 in this market, then consumer surplus will decrease by
$200
Refer to Figure above. The amount of revenue collected by the government from the tariff is
$200
Refer to Figure above. What is the amount of the tax per unit?
$4
Refer to Figure above. The socially optimal quantity of output is
140 units, since the value to society of the 140th unit is equal to the cost incurred by the seller of the 140th unit.
Suppose the price of a bag of frozen chicken nuggets decreases from $6.60 to $6.50 and, as a result, the quantity of bags demanded increases from 600 to 620. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is
2.15
Refer to Figure above. The opportunity cost of this economy moving from point B to point C is
20 knives
If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a
50.00 percent decrease in the quantity demanded.
Which of the following changes would not shift the demand curve for a good or service?
A change in the price of the good or service.
For which of the following individuals would the opportunity cost of going to college be highest?
A famous, highly paid actor who wants to take time away from show business to finish college and earn a degree
Refer to Figure above. Which of the following events would explain the shift of the production possibilities frontier from A to B?
A general technological advance
Which of the following statements about models is correct?
Because economic models omit many details, they allow us to see what is truly important.
Refer to Figure above. Chloe receives her first paycheck for working as a pretzel vendor. To which of the arrows does this transaction directly contribute?
C only
Refer to Figure above. The deadweight loss created by the tariff is represented by the area
D + F
A decrease in the price of a product and an increase in the number of buyers in the market affect the demand curve in the same general way.
False
Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of foreign competition.
False
Government policies that improve equality usually increase efficiency at the same time.
False
Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.
False
If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.
False
If the price elasticity of demand is equal to 0, then demand is unit elastic.
False
The "invisible hand" influences market behavior through trade.
False
Total surplus in a market can be measured as the area below the supply curve plus the area above the demand curve, up to the point of equilibrium
False
When markets open up to international trade, we know that consumer surplus will rise.
False
Refer to Figures above. The rate of trade-off between producing chairs and producing couches is constant in
Graph (b) only.
Assume, for India, that the domestic price of copper without international trade is lower than the world price of copper. This suggests that, in the production of copper,
India has a comparative advantage over other countries and India will export copper.
If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then
Iowa has a comparative advantage in the production of corn.
For which pairs of goods is the cross-price elasticity most likely to be positive?
Pens and pencils
Trade between countries
allows each country to consume at a point outside its production possibilities frontier.
Refer to Figure above. Which of the following movements would illustrate the effect of an increase in the incomes of parents with school-aged children on the market for soccer lessons?
Point C to Point B
Which of the following is an example of a positive, as opposed to normative, statement?
Prices rise when the government prints too much money.
Which of the following events would increase producer surplus?
Sellers' costs stay the same and the price of the good increases.
Which of the following is NOT a way of internalizing technology spillovers?
Taxes
Which of the following would likely be studied by a macroeconomist rather than a microeconomist?
The effect on the economy of changes in the nation's unemployment rate
Which is the most accurate statement about trade?
Trade can make every nation better off.
A decrease in supply will cause an increase in price, which will cause a decrease in quantity demanded.
True
A price ceiling set above the equilibrium price is not binding.
True
An increase in price increases consumer surplus.
True
Economists often find it worthwhile to make assumptions that do not necessarily describe the real world.
True
If a major union goes on strike, then the country would be operating inside its production possibilities frontier.
True
If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply approaches infinity.
True
In principle, trade can make a nation better off, because the gains to the winners exceed the losses to the losers.
True
Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.
True
Patent protection is one way to deal with technology spillovers.
True
Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium without trade, thus reducing the gains from trade.
True
The production possibilities frontier shows the trade-offs that the producer faces but does not identify the choice the producer will make.
True
Who gets scarce resources in a market economy?
Whoever is willing and able to pay the price
Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of
a transaction cost.
To say that a price ceiling is nonbinding is to say that the price ceiling
is set above the equilibrium price.
When we move along a given supply curve,
all nonprice determinants of supply are held constant.
Refer to Figure above. The movement from point A to point B on the graph is caused by
an increase in price.
A decrease in supply will cause the largest increase in price when
both supply and demand are inelastic.
Demand is said to be price elastic if
buyers respond substantially to changes in the price of the good.
The price elasticity of demand measures
buyers' responsiveness to a change in the price of a good.
Two types of private solutions to the problem of externalities are
charities and the Golden Rule.
If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a
command-and-control policy.
Refer to Figure above. If this country allows free trade in tricycles,
consumers will gain and producers will lose.
Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the
flatter the demand curve will be.
If the government removes a binding price floor from a market, then the price paid by buyers will
decrease, and the quantity sold in the market will increase.
Refer to Figure above. The imposition of a tariff on roses
decreases the number of roses imported by 200.
Refer to Figure above. The price ceiling causes quantity
demanded to exceed quantity supplied by 90 units.
Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution
is less costly to society.
Suppose the cross-price elasticity of demand between peanut butter and jelly is −2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to
fall by 50 percent.
Refer to Figure above. With trade, this country
imports 320 tricycles.
A gardener has the ability to grow either apples or pears or some combination of the two. Given no other information, it follows that the gardener's opportunity cost of a pound of apples multiplied by his opportunity cost of a pound of pears
is equal to 1.
Refer to Figure above. If the price decreased from $36 to $12, total revenue would
increase by $4,800, and demand is elastic between points X and Z.
If the price elasticity of supply is 0.7, and price increased by 24 percent, quantity supplied would
increase by 16.80 percent.
If the demand for donuts is elastic, then a decrease in the price of donuts will
increase total revenue of donuts sellers.
When an externality is present, the market equilibrium is
inefficient, and the equilibrium does not maximize the total benefit to society as a whole.
Absolute advantage is found by comparing different producers'
input requirements per unit of output.
The business cycle is the
irregular fluctuations in economic activity.
The infant-industry argument
is based on the belief that protecting industries when they are young will pay off late
Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
positive, and the good is a normal good.
When a country that exported a particular good abandons a free-trade policy and adopts a no-trade policy,
producer surplus decreases and total surplus decreases in the market for that good.
When a country that imports a particular good imposes a tariff on that good,
producer surplus increases and total surplus decreases in the market for that good.
According to the Coase theorem, private parties can solve the problem of externalities if
property rights are clearly defined.
Refer to Figure above. In this market, a minimum wage of $6 creates a labor
surplus of 12,000 worker hours.
Refer to Figure above. In this market, a minimum wage of $6 creates a labor
surplus of 4,000 worker hours.
A tax on an imported good is called a
tariff.
The "unfair-competition" argument might be cited by an American who believes that
the French government's subsidies to French farmers justify restrictions on American imports of French agricultural products.
A baker recently has come to expect higher prices for bread in the near future. We would expect
the baker to supply less bread now than she was supplying previously.
The term tax incidence refers to
the distribution of the tax burden between buyers and sellers.
efer to Figure above. With trade and without a tariff,
the domestic price is equal to the world price.
Which of the following is not a commonly-advanced argument for trade restrictions?
the efficiency argument
In some cases, tradable pollution permits may be better than a corrective tax because
the government can set a maximum level of pollution using permits.
A production possibilities frontier is bowed outward when
the rate of trade-off between the two goods being produced depends on how much of each good is being produced.
Refer to Figure above. The graph represents a market in which
there is a positive externality.
