Microeconomics Final Exam TopHat Questions
A network externality occurs when A the usefulness of a good is affected by how many others use the good. B there is production cost savings from being networked with buyers. C the usefulness of a good is affected by celebrities who use the good. D there is production cost savings from being networked with suppliers.
A
Both buyers and sellers are price takers in a perfectly competitive market because A each buyer and seller is too small relative to others to independently affect the market price. B each buyer and seller knows it is illegal to conspire to affect price. C the price is determined by government intervention and dictated to buyers and sellers. D both buyers and sellers in a perfectly competitive market are concerned for the welfare of others.
A
Consumers are willing to purchase a product up to the point where A the marginal benefit of consuming a product is equal to its price. B the marginal benefit of consuming the product is equal to the marginal cost of consuming it. C the marginal benefit of consuming the product equals the area below the supply curve and above the market price. D the consumer surplus is equal to the producer surplus.
A
Economic costs of production differ from accounting costs in that A economic costs add the opportunity costs of a firm using its own resources while accounting costs do not. B accounting costs are always larger than economic cost. C economic costs include expenditures for hired resources while accounting costs do not. D accounting costs include expenditures for hired resources while economic costs do not.
A
Economic efficiency A is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. B is a market outcome in which the sum of consumer surplus and producer surplus is at a minimum. C is a market outcome in which every individual is better off than they would be at any other market outcome. D All of these.
A
Economics assume that rational people do all of the following except A undertake activities that benefit others and hurt themselves B use all available information as they act to achieve their goals C weight the benefits and costs of all possible alternative actions D respond to economic incentives
A
Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ____, meaning they make the best decisions given their knowledge of the costs and benefits. A rationally B equitably C emotionally D selfishly
A
If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set A equal to the marginal private cost of production at the economically efficient level of pollution. B at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product. C equal to the amount of the deadweight loss created in the absence of a pollution tax. D equal to the marginal external cost at the economically efficient level of pollution.
A
In the short run, if marginal product is at its maximum, then A marginal cost is at its minimum. B average cost is at its minimum. C total cost is at its maximum. D average variable cost is at its minimum.
A
Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? A Yes. If marginal cost is less than average total cost, then average total cost will be decreasing. Your answer B No. If marginal cost is increasing, then average total cost will be increasing. C Yes. If marginal cost is less than average total cost, then average total cost may be increasing or decreasing. D Yes. If marginal cost is increasing, then average total cost will be decreasing. E Yes. If marginal cost is less than average total cost, then average total cost will be increasing.
A
Suppose a decrease in the supply of bottled water results in a decrease in revenue. This indicates that A the demand for bottled water is elastic in the price range considered. B the supply of bottled water is inelastic in the price range considered. C the demand for bottled water is inelastic in the price range considered. D the supply of bottled water is elastic in the price range considered.
A
The Coase theorem states that A if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities. B a free market equilibrium is the best solution to address externalities. C government intervention is always needed if externalities are present. D assigning property rights is the only thing the government should do in a market economy.
A
The decision about what goods and services will be produced made in a market economy is made by A consumers and firms choosing which goods and services to buy or produce. B consumers dictating to firms what they need most. C producers deciding what society wants most. D workers deciding to produce only what the boss says must be produced. E lawmakers in the government voting on what will be produced.
A
The demand for all carbonated beverages is likely to be ____ the demand for Dr. Pepper. A less elastic than B more elastic than C perfectly inelastic compared to D perfectly elastic compared to
A
The figure shows a market with a negative externality. The efficient output level is A Qb. B Qa. C Qd. D Qb - Qd.
A
The figure shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. What is the area that represents producer surplus after the imposition of the price floor? A B + E B A + B + E C B + E + F D B + C + D + E
A
The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of A trade-off. B equity. C efficiency. D optimization.
A
The minimum efficient scale is A level of operation where long-run average costs are lowest. B the level of output where diminishing returns have not set in yet. C the smallest output level where the firm finally reaches productive efficiency. D the plant size that yields the most profit.
A
When is output inefficiently low? A When marginal benefit is greater than marginal cost. B When marginal cost is greater than marginal benefit. C When marginal cost is equal to marginal benefit. D Any of these; output can be inefficiently low at any time.
A
Which of the following is a common mistake consumers commit when they make decisions? A They fail to ignore sunk costs. B They take into account nonmonetary opportunity costs but ignore monetary costs. C They are overly pessimistic about their future behavior. D They sometimes value fairness too much.
A
Which of the following statements about positive economic analysis is false? A There is much more disagreement among economists over positive economic analysis than over normative economic analysis. B There is much more disagreement among economists over normative economic analysis than over positive economic analysis. C Unlike normative economic analysis, positive economic analysis can be tested. D Positive analysis uses an economic model to estimate the costs and benefits of different course of actions.
A
A product is considered to be rivalrous if A you can keep those who did not pay for the item from enjoying its benefits. B your consumption of the product reduces the quantity available for others to consume. C it is jointly owned by all members of a community. D you cannot keep those who did not pay for the item from enjoying its benefits.
B
A negative externality exists if A there are quantity controls in a market. B the marginal social cost of producing a good or service exceeds the private cost. C the marginal private cost of producing a good or service exceeds the social cost. D there are price controls in a market.
B
A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss. A profit of $6,000 B loss of $6,000 C profit of $30,000 D There is insufficient information to answer the question.
B
A standard which came to the market first, such as the QWERTY letter layout in typewriters, can become entrenched (this layout is still used in computer keyboards today). What is this phenomenon called? A comparative advantage B path dependency C sunk cost D network externalities
B
A successful market economy requires A an equitable distribution of income and limits on immigration. B well-defined property rights and an independent court system to adjudicate disputes based on the law. C generous unemployment benefits and paid medical leave for everyone in the labor force. D a government-controlled banking system and government price controls.
B
Adam Smith's invisible hand refers to A the laws of nature that influence economics decisions. B the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole. C property ownership laws and the rule of the court system. D the government's unobtrusive role in ensuring that the economy functions efficiently.
B
An increase in the demand for lobster due to changes in consumer tastes, accompanied by a decrease in the supply of lobster as a result bad weather reducing the number of fishermen trapping lobster, will result in A a decrease in the equilibrium quantity of lobster; the equilibrium price may increase or decrease. B an increase in the equilibrium price of lobster; the equilibrium quantity may increase or decrease. C an increase in the equilibrium price of lobster and no change in the equilibrium quantity. D a decrease in the equilibrium quantity of lobster and no change in the equilibrium price.
B
Because the benefits derived from an activity decline as it is expanded, it is generally A wise to undertake all actions that generate benefits. B efficient to stop well before perfection is achieved. C best to continue as long as it is possible to derive some additional benefits. D unwise to engage in activities for which the benefits decline as you do more of it.
B
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce. A -0.66 B 0.5 C 1.5 D 2
B
Comparative advantage means the ability to produce a good or service A at a higher profit level than any other producer. B at a lower opportunity cost than any other producer. C at a lower selling price than any other producer. D of a higher quality than any other producer.
B
Economists argue that the level of pollution should be A ignored because it has always been present since the beginning of history. B reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society. C reduced completely to zero because by definition, it is a negative external effect. D best determined by elected officials who can speak on behalf of the public.
B
Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of A Coasian solution to pollution reduction. B command and control approach to pollution reduction. C a tradable emission allowance system of pollution control. D the Pigovian method of pollution control.
B
Governments can increase the consumption of a product that creates positive externalities by A assigning property rights to the producers of the product. B subsidizing the production of the product so that the supply is increased and market price is reduced. C taxing the production and consumption of the product. D convincing everyone to consume the good.
B
If production displays economies of scale, the long-run average cost curve is A below the long-run marginal cost curve. B downward-sloping. C above the short-run average total cost curve. D upward sloping.
B
If your total satisfaction increases when you consume another unit, your marginal utility must be A decreasing. B positive. C increasing. D negative.
B
If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm A is maximizing marginal profit. B added more to total revenue than it added to total cost. C added more to total costs than it added to total revenue. D has minimized its losses.
B
In economics, choices must be made because we live in a world of A unemployment. B scarcity. C unlimited resources. D greed.
B
Macroeconomics is the study of A how firms make choices. B the economy as a whole. C how households and firms make choices. D how households make choices.
B
Marginal utility is the A total satisfaction received from consuming a given number of units of a product. B extra satisfaction received from consuming one more unit of a product. C satisfaction achieved when a consumer has had enough of a product. D average satisfaction received from consuming a product.
B
Microeconomics is the study of A the global economy. B how households and firms make choices. C topics such as unemployment, inflation, and economic growth. D the economy as a whole.
B
Rent control is an example of A a price floor. B a price ceiling. C a black market. D a subsidy for low-skilled workers.
B
The demand by all the consumers of a given good or service is the ____ for the good or service. A law of demand B market demand C quantity demanded D demand schedule
B
The demand by all the consumers of a given good or service is the ____ for the good or service. A scheduled demand B market demand C quantity demanded D law of demand
B
The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called A the income effect. B consumer surplus. C producer surplus. D the substitution effect.
B
The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of A optimization. B trade-off. C efficiency. D equity.
B
The law of diminishing marginal returns states A average total costs of production initially fall and after some point starts to rise at a decreasing rate as output increases. B that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline. C that in the presence of a fixed factor, at some point average product of labor starts to fall as more and more variable inputs are added. D that at some point, adding more of a fixed input to a given amount of variable inputs will cause the marginal product of the variable input to decline.
B
The points outside the production possibilities frontier are A efficient. B unattainable. C attainable. D inefficient.
B
The price elasticity of supply is equal to A the percentage change in price divided by the percentage change in quantity supplied. B the percentage change in quantity supplied divided by the percentage change in price. C the change in quantity supplied divided by the change in price. D the value of the slope of the supply curve.
B
When there few close substitutes available for a good, demand tends to be A relatively elastic. B relatively inelastic. C perfectly inelastic. D perfectly elastic.
B
Which of the following is a normative economic statement? A With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased. B Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable. C Rising global demand for coal has led to increases in the price of coal. D The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation.
B
Which of the following is evidence of a surplus of bananas? A Firms raise the price of bananas. B The price of bananas is lowered in order to increase sales. C The quantity demanded of bananas is greater than the quantity supplied. D The equilibrium price of bananas rises due to an increase in demand.
B
Which of the following is not a characteristic of a perfectly competitive market structure? A All firms sell identical products. B There are restrictions on exit of firms. C There are no restrictions to entry by new firms. D There are a very large number of firms that are small compared to the market.
B
Which of the following is not a result of government price controls? A A deadweight loss will occur. B Price controls benefit poor consumers but harm producers and wealthy consumers. C Some people win and some people lose. D Price controls decrease economic efficiency.
B
Which of the following statements is true about the price elasticity of demand along a downward sloping linear demand curve? A It is unit-elastic throughout the demand curve. B It is elastic at high prices and inelastic at low prices. C It is perfectly elastic at very high prices and perfectly inelastic at very low prices. D It is inelastic at high prices and elastic at low prices.
B
Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase? A an increase in the price of butter, a complement for white bread B a decrease in the price of flour Your answer C an increase in the price of rye bread, a substitute for white bread D an increase in the price of flour
B
A change in all of the following variables will change the market demand for a product except A tastes. B income. C the price of the product. D population and demographics.
C
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula. A 0.17 B 0.62 C 1.62 D 5
C
If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is A 25 utility units. B 20 utility units. C 5 utility units. D unknown as more information is needed to determine the
C
If a firm produces 20 units of output and incurs a total cost of $1,000 and a variable cost is $700, calculate the firm's average fixed cost of production if it expands output to 25 units. A $300 B $15 C $12 D It is impossible to determine without additional information.
C
If a perfectly competitive firm's price is above its average total cost, the firm A is incurring a loss. B is breaking even. C is earning a profit. D should shut down.
C
If the demand for a good increases, which of the following will generally occur in a market setting? A The price of the good will decrease. B The supply of the good will increase. C The quantity supplied will increase. D Producer profits will fall.
C
If the market price is $30 and the quantity is 180 units, the firm's profit-maximizing output level is A 0. B 130. C 180. D 240.
C
Implicit costs can be defined as A total cost minus fixed costs. B the deferred cost of production. C the non-monetary opportunity cost of using the firm's own resources. D accounting profit minus explicit cost.
C
One reason why, in the short run, the marginal product of labor might increase initially as more workers are hired is that A the best workers are hired first and later hires are not as skillful. B the first workers hired get to use the best equipment. C specialization allows a worker to focus on one task, thereby increasing her proficiency at that task. D beyond some point, a firm has hired too many workers.
C
Price elasticity of demand measures A how responsive sales are to a change in buyers' incomes. B how responsive suppliers are to price changes. C how responsive quantity demanded is to a change in price. D how responsive sales are to changes in the price of a related good.
C
Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase? A an increase in the price of sheep feed B an increase in the demand for cattle C a decrease in the price of cattle D an increase in the price of sheep
C
Suppose the value of the price elasticity of demand is -3. What does this mean? A A $1 increase in price causes quantity demanded to fall by 3 units. B A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent. C A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. D A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent.
C
The figure shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. What area represents the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor? A B + C B E C B D B + E
C
The figure shows the market for beer. The government plans to impose a unit tax in this market. How much of the tax is paid by buyers? A $12 B $7 C $5 D $2
C
The observation that people tend to value something more highly when they own it than when they don't is called the A wealth effect. B path dependent effect. C endowment effect. D endorsement effect.
C
The principle of opportunity cost is that A the cost of production varies depending on the opportunity for technological application. B taking advantage of investment opportunities involves costs. C the economic cost of using a factor of production is the alternative use of that factor that is given up. D in a market economy, taking advantage of profitable opportunities involves some money cost.
C
The production possibilities frontier shows the ____ combinations of two products that may be produced in a particular time period with available resources. A maximum attainable B only C equitable D minimum attainable
C
The second worker had a total production of 42. The third worker had a total production of 57. The marginal product of the 3rd worker is A 57. B 19. C 15. D 11.
C
The slope of a production possibilities frontier A is always constant. B has no economic relevance or meaning. C measures the opportunity cost of producing one more unit of a good. D is always varying.
C
The three fundamental questions that any economy must address are: A What will be the prices of goods and services; how will these goods and services be produced; and who will receive them? B Who gets jobs; what wages do workers earn; and who owns what property? C What goods and services to produce; how will these goods and services be produced; and who receives them? D How much will be saved; what will be produced; and how can these goods and services be fairly distributed
C
Which of the following illustrates the law of supply? A A change in price causes a shift of the supply curve. B An increase in the number of firms in an industry causes a shift of the supply curve. C An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied. D All of these.
C
Which of the following is a microeconomics question? A What will the level of economic growth be in the entire economy? B How much will be saved and how much will be produced in the entire economy? C What factors determine the price of carrots? D What determines the average price level and inflation?
C
Which of the following is a source of market failure? A a lack of government intervention in a market B unforeseen circumstances which leads to the bankruptcy of many firms C incomplete property rights or inability to enforce property rights D an inequitable income distribution
C
Which of the following is the correct way to describe equilibrium in a market? A At equilibrium, market forces no longer apply. B At equilibrium, demand equals supply. C At equilibrium, quantity demanded equals quantity supplied. D At equilibrium, scarcity is eliminated.
C
Adam Smith's behavioral assumption about humans was that people A typically act randomly. B typically act irrationally. C are consistently greedy. D usually act in a rational, self-interested way
D
All of the following are critical functions of the government in facilitating the operation of a market economy except A enforcing contracts. B enforcing property rights. C protecting private property. D ensuring an equal distribution of income to all citizens.
D
An inward shift of a nation's production possibilities frontier can occur due to A a change in the amounts of one good desired. B a reduction in unemployment. C an increase in the labor force. D a natural disaster like a hurricane or bad earthquake.
D
Both price floors and price ceilings, when effective (binding), lead to A shortages. B surpluses. C an increase in the quantity traded. D a decrease in the quantity traded.
D
By definition, economics is the study of A how to make money in a market economy. B how to make money in the stock market. C supply and demand. D the choices people make to attain their goals, given their scarce resources
D
If an increase in income leads to in an increase in the demand for peanut butter, then peanut butter is A a neutral good. B a necessity. C a complement. D a normal good.
D
If the cross-price elasticity of demand for computers and software is negative, this means the two goods are A inferior. B normal. C substitutes. D complements.
D
If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should A lower the price. B reduce its output. C keep output constant and enjoy the above normal profit. D increase its output.
D
One would speak of a change in the quantity of a good supplied, rather than a change in supply, if A the cost of producing the good changes. B supplier expectations about future prices change. C prices of substitutes in production change. D the price of the good changes.
D
The "tragedy of the commons" refers to the phenomenon where A people do not internalize an externality. B individuals are free riders. C there is rivalry in consumption. D people overuse a common resource.
D
The area ____ the market supply curve and ____ the market price is equal to the total amount of producer surplus in a market. A above; above B below; below C below; above D above; below
D
The demand by all the consumers of a given good or service is the ____ for the good or service. A scheduled demand B quantity demanded C law of demand D market demand
D
The demand curve for each seller's product in perfect competition is horizontal at the market price because A the price is set by the government. B all the demanders get together and set the price. C all the sellers get together and set the price. D each seller is too small to affect market price.
D
The difference between technology and technological change is that A technology is carried out by firms producing physical goods but technological change is an intellectual exercise into seeking ways to improve production. B technology involves the use of capital equipment while technological change requires the use of brain power. C technology is product-centered, that is, developing new products with our limited resources while technological change is process-centered in that it focuses on developing new production techniques. D technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs.
D
When the production possibilities curve is bowed out, resources are A not being used efficiently. B available in larger and larger quantities as more of one good is produced. C equally well suited to the production of both goods. D not equally well suited to the production of both goods.
D
Which of the following costs will not change as output changes? A average fixed cost B total variable cost C marginal cost D total fixed cost E average variable cost
D
Which of the following would cause a decrease in the supply of milk? A an increase in the number of firms that produce milk B a decrease in the price of milk C an increase in the price of cookies (assuming that milk and cookies are complements) D an increase the price of a product that producers sell instead of milk
D