Microeconomics Final (multiple choice)

Scarcity means that there is less of a good or resource available than people wish to have, true of false

true

A city with two firms who are licensed to sell school uniforms has an oligopoly?

yes

Goods with many close substitutes tend to have

more elastic demands

The average fixed cost curve always declines with increased levels of output, true or false?

true

What is the value of C

$100

What is the value of F

$150

price ceilings and price floors that are binding

cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price

Ryzard decides to open his own business and earns $60,000 in accounting profit the first year. When deciding to open his own business, he withdrew $20,000 from his savings, which earned 6 percent interest. He also turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Ryzard's economic profit from running his own business?

$13,800

Taylor sells 400 candy bars at $0.50 each. Her total costs are $125. Her profits are

$75

A manufacturer produces 350 units when the market price is $10 per unit and produces 460 units when the market price is $14 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

0.81

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland will produce and consume 20 bushels of corn and 800 bushels of oats. If each country made the decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by

380 bushels of corn and 100 bushels of oats

If the price elasticity of supply is 0.6, and a price increase led to a 3.7 percent increase in quantity supplied, then the price increase is about

6.17 percent

The buyers will bear the highest share of the tax burden compared to sellers if the demand is

D2 and supply is S2

The government may break up a natural monopoly to lower the price charged to customers, true or false

False

If a certain market were a monopoly, then the monopolist would maximize its profit by producing 4,000 units of output. If, instead, that market were a duopoly, then which of the following outcomes would be most likely if the duopolists successfully collude?

One duopolist produces 2,400 units of output and the other produces 1,600 units of output.

What would happen to the equilibrium price and quantity of lattes if the cost of producing steamed milk, which is used to make lattes, rises?

The equilibrium price would increase, and quantity decrease

The gains from trade are

a result of more efficient resource allocation than would be observed in the absence of trade

a payroll tax is a

a tax on the wages that firms pay their workers

If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will

be able to increase its markup over marginal cost

Both Ryan and Danuta produce hair scarves and brooches. However, Ryan is better at producing both good. In this case, trade could

benefit both Danuta and Ryan

a shortage results when a

binding price ceiling is imposed on a market

a surplus results when a

binding price floor is imposed on a market

Equilibrium quantity must decrease when

both demand and supply decrease

Under rent control, bribery is a potential mechanism to

bring the total price of an apartment (including the bribe) closer to the equilibrium price

A good will have a more inelastic demand, the

broader the definition of the market

the price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

The invisible hand refers to

how the decisions of households and firms lead to desirable market outcomes

When two variables have a positive correlation,

if the x-variable decreases, the y-variable decreases.

the supply of a good will be more elastic, the

longer the time period being considered.

Average total cost is increasing whenever

marginal cost is greater than average total cost

If marginal cost is rising,

marginal product must be falling

the burden of a luxury tax usually falls on

more on the middle class than on the rich.

Where can an economy not produce?

outside its production possibilities frontier

If duopoly firms that are not colluding were able to successfully collude, then

price would rise and quantity would fall

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

produce fewer custom made shoes

The Sherman antitrust act

prohibits price fixing in the sense that competing executives cannot even talk about fixing prices

trade allows specialization which

reduces cost

cost is a measure of the

seller's willingness to sell

According to one theory, ads send a signal to consumers about the quality of the product being offered. An implication of this theory is that

the existence of an expensive ad is more important that the content

The short-run supply curve for a firm in a perfectly competitive market is

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

demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

The law of demand states that, other things equal, when the price of a good falls,

the quantity demanded of a good rises

the price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good

When a country has a comparative advantage in producing a certain good,

then specializing in the production of that good and trading for other goods could allow that country to consume at a point beyond its production possibilities frontier

A natural monopoly occurs when

there are economies of scale over the relevant range of output

In a prisoner's dilemma game, if they play repeatedly

they'll on average have better results than playing just once

According to the Clayton Act individuals can sue to recover damages from illegal cooperative agreements, true or false

true

An economy can produce at any point on or inside its production possibilities frontier, but it cannot produce at points outside the frontier, true or false

true

Efficient production is on the production possibilities frontier, true or false

true

In the circular flow diagram income payments flow from firm to household, true or false

true

Microeconomics is the study of how households and firms make decisions and how they interact in specific markets, true or false

true

the opportunity cost of an item is

what you give up to get that item

Price discrimination can maximize profits if the seller can prevent the resale of goods between customers?

yes

Would an increase in consumer income (assuming gas is a normal good) shift the demand curve for gasoline to the right?

yes

Whenever a cartel in a duopoly breaks down,​

​total output in the market will rise.

total revenue equals

Price x Quantity

Korie wants to start her own business making custom furniture. She can purchase a factory that costs $400,000. Korie currently has $500,000 in the bank earning 3 percent interest per year. Suppose Korie purchases the factory using $200,000 of her own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Korie's annual opportunity cost of purchasing the factory?

$18,000

Scenario 17-1 ​ Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost. Refer to Scenario 17-1.If the restaurant is unable to use tying, what is the profit-maximizing price to charge for a steak?

$20

Suppose a firm in a competitive market earned $3,000 in total revenue and had a marginal revenue of $30 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

$30 and 100 units

What is the marginal cost of producing the fifth unit of output?

$70

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

0.67, and an increase in the price will result in a increase in total revenue for good A

A firm produces 400 units of output at a total cost of $1200. If total variable costs are $1000. Average fixed costs are

50 cents

Suppose there is an early freeze in California that reduces the size of the lemon crop. As the price of lemons rises, what happens to the consumer surplus in the market for lemons?

Consumer surplus decreases

On a graph the area below a demand curve and above price measures

consumer surplus

A necessary characteristic of a monopoly is the firm being the sole seller, true or false?

True

Brand names may help consumers if they provide info about the quality of a product when acquiring such information is difficult?

Yes

A group of buyers and sellers of a particular good or service is called

a market

In monopolistically competitive markets, free entry and exit suggests that

all firms earn zero economic profits in the long run

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

does not change

Trade between countries allows

each country to consume at a point outside its production possibilities frontier

In the prisoner's dilemma game, self-interest leads

each prisoner to confess

"Minimum wage laws result in unemployment" is a normative statement, "while the minimum wage should be higher" is a positive statement, true or false

false

A bakery charging a higher price for brownies than for cookies is an example of price discrimination, true or false?

false

Equality means distributing society's resources in the most efficient manner, true or false

false

tuition is the single largest cost of attending college for most students, true or false

false

Instead of conducting laboratory experiments to generate data to test their theories, economists often

gather data from historical episodes of economic change

the goal of rent control is to

help the poor by making housing more affordable

resources are scrace for

household and scarce for economies

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's

implicit costs

a decrease in the supply of a good will

increase quantity demanded

An increase in the supply of a good will

increase quantity supplied

Suppose an increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, the demand for tires

is unaffected, and the supply of tires could increase, decrease, or stay the same

A firm that shuts down temporarily has to pay

its fixed costs but not its variable costs

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers

labor to be variable and capital to be fixed

Economies of scale occur when

long-run average total costs fall as output increases

A rational decision maker

takes an action only if the marginal benefit of that action exceeds the marginal cost of that action

The production possibilities frontier illustrates

the combinations of output that an economy can produce