MicroEcon Test 1 (Chapter 1-8)
The market system's answer to the fundamental question "What will be produced?" is essentially
"goods and services that are profitable."
The market system's answer to the fundamental question
"those willing and able to pay for them"
Which of the following statements best reflects the concept of present value
"you owe me $500, due at the end of the year, but I will reduce your debt to $450 if you pay me now."
Refer to the above data. The average total cost of producing 3 units of output is
$16
Refer to the above data. Equilibrium price will be
$2
Refer to the above data. The total variable most of producing 5 units is
$37
Refer to the above data. The value for Y is
45
in the untied states professional football players earn much higher incomes than professional soccer players. This occurs because
consumers have greater demand for football games than for soccer games
In general, risk levels and average expected rates of return are
directly related
Owners of stock can receive ___ from their shares, sellers of stock can receive ___ from selling their shares
dividends; capital gains
According to behavioral economics
each successive unit of loss hurts, but less than the previous unit
Refer to the above diagram. If this competitive firm produces output Q it will
earn a normal profit
The primary force encouraging the entry of new firms into a purely competitive industry is
economic profits earned by firms already in industry
Non-diversifiable risk refers to potential losses from
events that move all investments in the same direction, like unexpected political of economic shocks
Economic profits are calculated by subtracting
explicit and implicit costs from total revenue
What is the difference between economic and financial investments
financial investments include all purchases undertaken with the expectation of financial gain; economic investments include only purchases of new capital goods
Which of the following is most likely to be a variable cost
fuel and power payments
Refer to the above diagram. Flow 3 represents:
goods and services
Which type of goods is more adversely affected by recessions
goods for which the income elasticity coefficient is relatively high and positive
The labor supply curve for a particular occupation is upsloping because
higher wages will be needed to attract workers from other occupations
The simple circular flow model shows that:
households are on the selling side of the resource market and on the buying side of the product market.
The production possibilities curve illustrates the basic principle that:
if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced
The U.S. Federal government is unlikely to default on its bond payments because
if necessary, it can print the money needed to make payments on time
With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will
increase equilibrium price and quantity if the product is a normal good
Refer to the above diagram. The decline in price from P1 to P2 will
increase total revenue by D - A
One can say with certainty that equilibrium price will decline when supply
increases and demand decreases
Over time, the equilibrium price of a gigabyte of computer memory has fallen while the equilibrium quantity purchased has increased. Based on this we can conclude that
increases in the supply of computer memory have exceeded increases in demand
The real wage will rise if the normal wage
increases more rapidly than the general price level
The hedonic treadmill refers to a phenomenon where
increasing our level of consumption doesn't make us any happier in the long term
Refer to the above table. Over the $6-$4 price range, supply is
inelastic
Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be
inelastic for price declines that increase quantity demanded form 6 units to 7 units
The process of producing and accumulating capital goods is called:
investment
If a product is in surplus supply, its price
is above the equilibrium level
Microeconomics:
is concerned with individual economic units and specific markets.
Refer to the above diagram. At output level Q average fixed cost
is measured by both QF and ED
If total utility is increasing, marginal utility
is positive, but may be either increasing or decreasing
The utility of a good or services
is the satisfaction or pleasure one gets from consuming it
Refer to the above diagram. Other things equal, this economy will achieve the most rapid rate of growth if
it chooses point A
Which of the following is a normative statement?
it is too hot to play tennis today
If a firm decides to produce no output in the short run, its cost will be
its fixed costs
The four factors of productions are:
land, labor, capital, and entrepreneurial ability
The above diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the
long run, short run, and immediate market period respectively
The problems of aggregate inflation and unemployment are:
major topics of macroeconomics
In the short run the individual competitive firm's supply curve is that segment of the
marginal cost curve lying above the average variable cost curve
A nation's production possibilities curve is bowed out from the origin because:
resources are not equally efficient in producing every good
Refer to the above diagram. At output level Q2
resources are over allocated to this product and productive efficiency is not realized
Refer to the above diagram. At output level Q1
resources are undercoated to this product and productive efficiency is not realized
The price elasticity of supply measures how
responsiveness the quantity supplied of X is to changes in the price of X
An improvement in production technology will
shift the supply curve to the right
Economics may be best defined as the:
social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.
A leftward shift of a product supply curve might be caused by
some firms leaving an industry
Diversifiable risk refers to risk
specific to a particular investment
The concept of opportunity cost
suggests that the use of resources in any particular line of production means that alternative outputs must be forgone
Refer to the above table. As compared to production alternative D, the choice of alternative C would:
tend to generate a more rapid growth rate
Refer to the above diagram. The vertical distance
the average fixed cost at each level of output
What are the two most important factors influencing investor preferences
the desire for high rates of return and dislike of risk and uncertainty
Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that
the economy was not employing all of its resource before the policy change
The above diagram portrays
the equilibrium position of a competitive firm in the long run
The diamond-water paradox occurs because
the price of a product is related to its marginal utility, not its total utility
Employers will hire more units of a resource if
the productivity of the resource increases
Which of the following will not produce an outward shift of the production possibilities curve?
the reduction of unemployment
It takes a considerable amount of time to increase the production of beef. This implies that
the short-run supply curve for beef is less elastic than the long-run supply curve for beef
The price of old baseball cards rises rapidly with increase in demand because
the supply of old baseball cards is price inelastic
Which of the following is a positive statement?
the temperature is 92 degrees today
Which of the following decreases labor demand is due to a change in product demand?
the widespread availability of news on the Web reduces the demand for newspaper workers
Refer to the above data. Diminishing marginal returns become evident with the addition of the
third worker
Firms seek to maximize
total profit
Refer to the above diagram, which pertains to a purely competitive firm. Curve A represents
total revenue only
The theory of consumer behavior assumes that consumers attempt to maximize
total utility
Refer to the above diagram. Flow 1 represents:
wage, rent, interest and profit income
If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue
will also be $5
Where total utility is at a maximum, marginal utility is
zero
Refer to the above data. The average fixed cost of producing 3 units of output is
$8
Refer to the above data. The marginal cost of producing the sixth unit of output is
$8
Refer to the above data. The value for Z is
-5
Refer to the above diagram. At output level Q total
0BEQ
Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be:
1/3 of a unit of capital goods
Refer to the above data. The value for X is
15
Refer to the above data. The value for W is
20
The price elasticity of demand for widest is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a
20 percent reduction in price
Refer to the above diagram. Total revenue at price P1, is indicated by area(s)
A + B
Refer to the above diagram. At output level Q total fixed cost is
BCDE
Refer to the above diagram. This economy will experience unemployment if it produces at point
D
Which of the following conditions is true for a purely competitive firm in long-run equilibrium
P=MC=minimum ATC
What do the income effect, the substitution effect, and demising marginal utility have in common
They all help explain the downsloping demand curve
A rightward shift in the demand curve for product C might be caused by
a decrease in the price of a product that is complementary to C
Suppose that a girl has "pricing power" and can segregate its market into two distinct groups based on differences in elasticities of demand. The firm might charge
a higher rice to the group that has the less elastic demand
Refer to the above diagram. A price of $20 in this market will result in
a shortage of 100 units
The failure of Soviet central planning was reflected in:
all of the above
The main determinant of elasticity of supply is the
amount of time the producer has to adjust inputs in response to a price change
Which of the following best expresses the law of diminishing returns
as successive amounts of one resource (labor) are added to fixed amounts of other resources (property), beyond some point the resulting extra output will decline
The basic difference between the short tun and the long run is that
at least one resource is fixed in the short ru, while all resources are variable in the long run
Refer to the above diagram, which pertains to a purely competitive firm. Curve C represents
average revenue and marginal revenue
A person should consume more of something when its marginal:
benefit exceeds its marginal cost.
Which of the following is both an economic and financial investment
boeing corporation building a new factory
The price elasticity of demand coefficient measures
buyers responsiveness to price changes
Refer to the above data. The profit-maximizing output for this firm
cannot be determined from the information given
When patents on new medications expire, the market or those drugs
change from being monopolistic to being competitive
The idea that money has "time value" refers to the fact that
compound interest converts current dollars into a greater amount of future dollars
Refer to the above diagram. Flow 4 represents:
consumer expenditures
The introduction of ATM machines has
decreased the demand for a substitute resource human tellers
If X is a normal good, a rise in money income will shift to the
demand curve for X to the right
The law of diminishing marginal utility explains why
demand curves slope downwards
The demand for a productive resources is said to be "derived" because the demand for the factor
depends on the demand for the product it helps to produce
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company
depreciation charges on company-owned equipment
The two general types of economic systems that exist today are:
market systems and capitalism
Money is not an economic resource because:
money, as such, is not productive
Assume an economy is incurring unemployment. The effect of resolving this problem will be to
move to the level of actual output to the economy's production possibilities curve.
Assume an economy is operating at some point on its production possibilities curve, which shows civilian and military goods. If the output of military goods is increased, the output of civilian goods
must be decreased
Mary says, "You would have to pay me $50 to attend that pro westing event." For Mary, the marginal utility of the event is
negative
Wage determined in labor markets is important because
of all of these reasons
The basic formula for the price elasticity of demand coefficient is
percent change in quantity demanded/percentage change in price
The scarcity problem:
persists because economic wants exceed averrable productive resources
For economics, the word "utility" means:
pleasure and satisfaction.
Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is
positive and therefore X is a normal good
An unprofitable motel will stay open in the short-run if
price (average nightly room rate) exceeds average variable cost
The law of demand states that
price and quantity demand are inversely related
Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that
price is greater than marginal cost
Oil wells and seasonal resorts will often shut down temporary because
prices for their output temporarily fall below their average variable costs of production
If the supply and demand curve for a product both decrease, then equilibrium
quantity must decline, but equilibrium price may either rice, fall, or remain unchanged
If we say that a price is too high to clear the market, we mean that
quantity supplied exceeds quantity demanded