MICRO FINAL 2020 Practice Questions

If the marginal cost of a perfectly competitive firm producing a good is $50 and the market price of the good is $100, the firm should

increase its output

Which of the following would be an example of the Coase Theorem?

The homeowners association provides a fireworks show that ends at 10 p.m.

The social surplus in a market is $50. If another economic agent enters the market such that the marginal cost he incurs is $10 and the marginal benefit he receives from the trade is $5, then which of the following statements is true?

The social surplus will decrease by $5

If you produce at a point on your Production Possibility Curve, then you are producing at a point that is

attainable and efficient

The long-run supply curve of a firm is

the portion of its marginal cost curve that lies above its average total cost curve

What is the Coase Theorem?

the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

If a good has a price elasticity of demand equal to 0

the quantity demanded is completely unaffected by a change in its price

Social surplus is the

total value from trade in the market.

arc elasticity

((P1+P2)/(Q1+Q2))*(dQ/dP)

When the price of a margarine is $2 per unit, 10 units of butter are demanded. When the price of margarine increase to $6 per unit, 30 units of butter are demanded. What is the cross price elasticity between the two goods?

1

The total cost of a firm is $50, the average variable cost is $2, and the average fixed cost is $3. How many units of the output does the firm produce?

10 units

Scenario: Gary purchases 50 shirts when the price of one shirt is $4. When the price of shirts increases to $6, the quantity he purchases reduces to 20 shirts. What is the absolute value of Garyʹs arc elasticity of demand for shirts?

2.14

If the price elasticity of supply of a good is 2, a 200% increase in the price of the good, will change the quantity supplied by

400%

Sharon consumes 10 chocolate when the price of one chocolate is $2. If her mid-point elasticity of demand for chocolates is -1, she consumes __________ chocolates when the price increases to $4.

5

A firm has an average total cost of $50. If it sells 20 units of its product at $80 each, what is its profit?

600

Consider a market where there are many firms with different cost structures. When determining which firms enter the market first, we look at

average total cost

Which of the following is likely to lead to a left shift in the demand curve for labor in the printing ink manufacturing industry?

A decrease in the demand for printing paper

Which of the following factors is likely to lead to an increase in the quantity demanded of pens?

A fall in the price of pens

Example of the Tragedy of the Commons?

A local lake requires people to buy a permit in order to go fishing and asks them to only take home one fish per person. There is no one there to enforce the policy, however, and many people overfish the lake, leading the fish population to almost disappear

Which of the following statements is true?

Absolute Advantage relates to production per units of inputs and comparative advantage involves the opportunity cost of producing different goods

Which of the following statements is true of competitive market equilibrium?

At the competitive equilibrium, there are no unexploited gains from trade.

Botswana and Liechtenstein are trading partners. Botswana has an absolute advantage in the production of both gravy and butter. The opportunity cost of producing 1 pound of butter in Botswana is 4 pounds of gravy and the opportunity cost of producing 1 pound of butter in Liechtenstein is 1/3 pound of gravy. Which of the following statements is true?

Botswana should specialize in the production of gravy, whereas Liechtenstein should specialize in the production of butter.

In theory, one reason why tradable pollution allowances are preferable to pollution regulation is because they:

Encourage lowest-cost pollution reduction

Which of the following best describes a good with perfectly elastic demand?

Even the smallest increase in the price of the good will cause consumers to stop consuming it completely

Botswana and Liechtenstein are trading partners. Botswana has an absolute advantage in the production of both gravy and butter. The opportunity cost of producing 1 pound of butter in Botswana is 4 pounds of gravy and the opportunity cost of producing one pound of butter in Liechtenstein is 1/3 pound of gravy. Which of the following statements is true?

If the exchange rate is closer to 1 pound of butter for 4 pounds of gravy, Liechtenstein gains more from trade.

If resources prices fall, what happens to the Production Possibility Curve?

It does not change

Assume that the market for chocolates is perfectly competitive. Which of the following statements would be true in this case?

Jill starts to produce chocolates today, but the addition of her supply into the market does not decrease the market price.

Which of the following relationships correctly identifies the profit maximization condition of a firm in a perfectly competitive market

Marginal cost = price = marginal revenue

What is the profit maximizing quantity for a monopolist?

P > MR = MC

first degree price discrimination

Practice of charging each customer her reservation price

the main purpose of a tariff is to

Protect domestic industry from competition,

Sandra consumes two goods-tea and coffee. Her demand for tea is inelastic while her demand for coffee is elastic. If there is an increase in the price of both tea and coffee,

Sandraʹs expenditure on tea will increase and her expenditure on coffee will decrease

If a nation opens up to free trade and becomes an importer of goods, which of the following is then true?

Sellers lose

Market inefficiencies result from all of the following, except:

Social benefits or costs.

STUDY

TAX INCIDENCE, cross price elasticity, arc elasticity, midpoint

Which of the following situations depicts diseconomies of scale?

The average total cost of a firm increases from $50 to $55 when it increases its production from 10 units to 20 units

Which of the following best describes why lump-sum taxes on producers don't eliminate deadweight loss in the short run in a market with a negative externality?

The don't alter the firm's marginal cost

Greenaqua Corp. is the only supplier of bottled drinking water in the country Lithasia. Due to the profits the firm enjoys, new corporations are interested in entering the market. If a few more companies producing their own line of bottled drinking water enter the market, which of the following statements will be true about Greenaqua Corp.?

The elasticity of demand of Greenaqua Corp.ʹs product is likely to increase.

When economists speak of a deadweight loss, they are referring to ________ in ________ caused by a market distortion.

a decrease; social surplus.

Entry of new firms into an existing market causes

a rightward shift of the market supply curve.

What is Nash Equilibrium?

a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen

which of the following is an example of capital?

a tractor used by a farmer for plowing his field

The long-run average total cost curve (ATC) lies ________ the short-run ATC. The long-run supply curve is the portion of the marginal cost (MC) curve that lies above the ________ curve.

below; Average Total Cost

The marginal cost curve intersects

both the average variable cost curve and the average total cost curve at their minimum

When the marginal cost curve lies above the average cost curve,

both the marginal cost curve and the average total cost curve slope upward

The willingness to pay for a commodity

decreases as consumption of the commodity increases.

In a perfectly competitive market, if market price is lower than the average total cost of production:

existing firms will leave the market.

If the market price of pizza in this competitive market is below the ATC curve and the price of calzones is above the ATC curve,________.The price of pizza will ________.

firms currently making pizza will switch to making calzones; increase.

If firms in a perfectly competitive market are earning profits or incurring losses in the short run, then in the long run these profits or losses will either cause new firms to enter or existing firms to leave the market. This will result in a shift in the profits are

industry supply curve; zero

In case of a linear negatively sloped demand curve, the price elasticity of demand:

is different at different points on the curve

Negative externalities impose an additional cost that:

is not explicitly recognized by the buyers and sellers in the market.

The short-run supply curve of a competitive firm is the portion of:

its marginal cost curve that lies above its average variable cost curve

Negative externalities cause a ________ shift of the supply curve and ________ in market quantity. Recognizing this deadweight loss ________ result in elimination of the externality.

leftward; decrease; will.

Suppose a country produces only two goods, Good X and Good Y. The opportunity cost of producing Good X equals

loss in good Y / gain in good X

In a regressive tax system, ________

lower tax rates on those earning higher incomes

Unless shutdown or exit is optimal, every firm expands production until

marginal revenue, marginal cost, and price are all equal (MR = MC = P)

In assessing the performance of a perfectly competitive market, we can say that

price efficiently allocates goods and services to buyers and sellers. no individual can be made better off without making someone else worse off. any departure from the equilibrium necessarily reduces social surplus.

Positive externalities result in a ________ shift of the ________ curve. There ________ a deadweight loss with a positive externality.

rightward; demand; will be.

If there is a decrease in the price of the final good that an industry produces, the labor demand curve in the industry is likely to:

shift to the left

If a monopoly engages in first-degree price discrimination:

social surplus is maximized;

A non-market price imposition is called a price control. A price control set above the equilibrium price will result in a________. A price control set below the equilibrium price will result in a________

surplus; shortage.

When the marginal cost curve lies below the average cost curve,

the average cost curve slopes downward

When bargaining to deal with negative externalities,

the cost falls on the party with the most to gain.

The tax incidence on buyers is higher if

the elasticity of the market supply curve is higher than the elasticity of the market demand curve