Intro to Microeconomics Exam II

1. If Danielle sells 300 wrist bands for $0.50 each, her total revenue are ______.

$150

2. Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are ______.

$25

10. Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. b. The implicit cost for one birdhouse is __________.

$4

8. The difference between accounting profit and economic profit is ________.

Implicit cost

4. Profit is defined as ___________.

Total revenue - total cost

9. Economic profit will never exceed accounting profit. (True/ False)

True

The price of a good that prevails in a world market is called the a. world price. b. relative price. c. absolute price. d. comparative price.

a. world price.

8. Refer to Figure 9-1. In the absence of trade, the equilibrium price of coffee in Guatemala is a. $30. b. $90. c. $110. d. $140.

b. $90.

7. Refer to Figure 10-8. What is the socially-optimal quantity of output in this market? a. 8 units b. Between 8 and 10 units c. 10 units d. More than 10 units

c. 10 units

5. (Graph 13-5) Which of the following represent average variable cost? a. A b. B c. C d. D

c. C

3. A firm's opportunity costs of production are equal to its a. explicit costs only. b. implicit costs only. c. explicit costs + implicit costs. d. explicit costs + implicit costs + total revenue.

c. explicit costs + implicit costs.

8. Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would a. introduce a subsidy of $2 per unit. b. impose a tax of $2 per unit. c. introduce a subsidy of $4 per unit. d. impose a tax of $4 per unit.

c. introduce a subsidy of $4 per unit.

1. Total revenue equals a. marginal revenue - marginal cost. b. price/quantity. c. price x quantity. d. output - input.

c. price x quantity.

When a country allows trade and becomes an importer of a good, a. the losses of the losers exceed the gains of the winners. b. everyone in the country benefits. c. the gains of the winners exceed the losses of the losers. d. everyone in the country loses.

c. the gains of the winners exceed the losses of the losers.

11. Katherine gives piano lessons for $20 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are __________ and economic profits are ___________.

$100; $0

10. Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. f. An economist would calculate the total profit one birdhouse to be ______________.

$11

10. Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. a. The explicit cost for one birdhouse is __________.

$5

10. Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. d. An economist would calculate the total cost for one birdhouse to be ____________.

$9

6. Refer to Figure 10-8. What is the equilibrium price in this market? a. $8 b. Between $8 and $10 c. $10 d. More than $10

a. $8

(Graph 13-5) Which of the following represent marginal cost? a. A b. B c. C d. D

a. A

1. In a market economy, government intervention a. will always improve market outcomes. b. reduces efficiency in the presence of externalities. c. may improve market outcomes in the presence of externalities. d. is necessary to control individual greed.

c. may improve market outcomes in the presence of externalities.

The marginal product of labor is equal to the a. incremental profit associated with a one unit increase in labor. b. increase in output obtained from a one unit increase in labor. c. increase in labor necessary to generate a one unit increase in output. d. incremental cost associated with a one unit increase in labor.

b. increase in output obtained from a one unit increase in labor.

11. Refer to Figure 9-1. When trade in coffee is allowed, producer surplus in Guatemala a. increases by the area B + D. b. increases by the area B + D + G. c. decreases by the area C + F. d. decreases by the area G.

b. increases by the area B + D + G.

3. The goal of a firm is to maximize its a. total revenue b. profit c. explicit costs d. total cost

b. profit

5. When negative externalities are present in a market a. private costs will be greater than social costs. b. social costs will be greater than private costs. c. only government regulation will solve the problem. d. the market will not be able to reach any equilibrium.

b. social costs will be greater than private costs.

2. If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price, a. the country will be an exporter of the good. b. the country will be an importer of the good. c. the country will be neither an exporter nor an importer of the good. d. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither.

b. the country will be an importer of the good.

5. When a country allows trade and becomes an importer of a good, a. everyone in the country benefits. b. the gains of the winners exceed the losses of the losers. c. the losses of the losers exceed the gains of the winners. d. everyone in the country loses.

b. the gains of the winners exceed the losses of the losers.

Bubba is a shrimp fisherman who can catch 4,000 pounds of shrimp per year. Bubba is considering hiring his cousin Bobby to work for him. Bobby can catch 3,000 pounds of shrimp per year. If Bubba hires Bobby, what will be the total output of his shrimp business? a. 3,500 pounds b. 3,000 pounds c. 7,000 pounds d. 1,000 pounds

c. 7,000 pounds

As more customers purchase food at the restaurant, _________ rises. a. Average total cost b. Marginal cost c. Variable cost d. Fixed cost

c. Variable cost

10. Refer to Figure 9-1. When trade in coffee is allowed, consumer surplus in Guatemala a. increases by the area B + D. b. increases by the area C + F. c. decreases by the area B + D. d. decreases by the area D + G.

c. decreases by the area B + D.

10. Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. e. An accountant would calculate the total profit for one birdhouse to be __________.

$15

10. Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. c. An accountant would calculate the total cost for one birdhouse to be ___________.

$5

Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. An economist would calculate the total cost for one photo frame to be a. $15 b.$5 c. $25 d. $10

a. $15

2. If Danielle sells 300 wrist bands for $0.50 each, her total revenues are a. $150. b. $299.50. c. $300. d. $600.

a. $150.

6. Refer to Figure 9-1. From the figure it is apparent that a. Guatemala will export coffee if trade is allowed. b. Guatemala will import coffee if trade is allowed. c. Guatemala has nothing to gain either by importing or exporting coffee. d. the world price will fall if Guatemala begins to allow its citizens to trade with other countries.

a. Guatemala will export coffee if trade is allowed.

Which of the following is NOT fixed costs of running fast food restaurant? a. Money spent on purchasing potato to make French fries b. Money spent on purchasing conveyor belt c. Money spent on renting restaurant space

a. Money spent on purchasing potato to make French fries

5. A direct monetary outlay by the firm is an a. explicit cost b. implicit cost c. revenues d. profits

a. explicit cost

7. Refer to Figure 9-1. With trade, Guatemala will a. export 22 units of coffee. b. export 10 units of coffee. c. import 30 units of coffee. d. import 12 units of coffee.

a. export 22 units of coffee.

In the absence of externalities, the "invisible hand" leads a market to maximize a. total benefit to society from that market. b. both equality and efficiency in that market. c. producer profit from that market. d. output of goods or services in that market.

a. total benefit to society from that market.

10. Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called a. transaction costs. b. corrective costs. c. input costs. d. private costs.

a. transaction costs.

Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. An economist would calculate the total profit for one photo frame to be a. $25 b. $15 c. $10 d. $5

b. $15

Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. Refer to Scenario 13-10. An accountant would calculate the total cost for one photo frame to be a. $20 b. $5 c. $15 d. $10

b. $5

9. Refer to Figure 9-1. In the absence of trade, total surplus in Guatemala is represented by the area a. A + B + C. b. A + B + C + D + F. c. A + B + C + D + F + G. d. A + B + C + D + F + G + H.

b. A + B + C + D + F.

What is the difference between command-and-control policies and market-based policies toward externalities? a. Command-and-control policies are efficient, whereas market-based policies are inefficient. b. Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decision makers to change their behavior. c. Command-and-control policies provide incentives for private decision makers to solve the problems on their own, whereas market-based policies regulate behavior directly. d. Command-and-control policies rely on taxes, whereas market-based policies rely on quotas.

b. Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decision makers to change their behavior.

4. Which of the following statements is correct? a. Government should tax goods with either positive or negative externalities. b. Government should tax goods with negative externalities and subsidize goods with positive externalities. c. Government should subsidize goods with either positive or negative externalities. d. Government should tax goods with positive externalities and subsidize goods with negative externalities.

b. Government should tax goods with negative externalities and subsidize goods with positive externalities.

The difference between social cost and private cost is a measure of the a. cost reduction when the negative externality is eliminated. b. cost of an externality. c. loss in profit to the seller as the result of a negative externality. d. cost incurred by the government when it intervenes in the market.

b. cost of an externality.

6. Implicit costs (a.) do or (b.) do not require a direct monetary outlay by the firm.

b. do not

4. A production function describes a. how a firm maximizes profits. b. how a firm turns inputs into output. c. the minimal cost of producing a given level of output. d. the relationship between cost and output.

b. how a firm turns inputs into output.

7. Foregone investment opportunities are an example of an a. explicit cost b. implicit cost c. revenues d. profits.

b. implicit cost

3. For any country, if the world price of copper is lower than the domestic price of copper without trade, that country should a. export copper. b. import copper. c. neither export nor import copper, since that country cannot gain from trade. d. neither export nor import copper, since that country already produces copper at a low cost compared to other countries.

b. import copper.

For any country, if the world price of copper is lower than the domestic price of copper without trade, that country should a. export copper. b. import copper. c. neither export nor import copper, since that country cannot gain from trade. d. neither export nor import copper, since that country already produces copper at a low cost compared to other countries.

b. import copper.

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will a. not emit any smoke in an attempt to avoid paying the entire cost. b. emit a lower level of smoke than is socially efficient. c. emit a higher level of smoke than is socially efficient. d. emit an acceptable level of smoke.

c. emit a higher level of smoke than is socially efficient.

3. Dioxin emission that results from the production of paper is a good example of a negative externality because a. self-interested paper firms are generally unaware of environmental regulations. b. there are fines for producing too much dioxin. c. self-interested paper producers will not consider the full cost of the dioxin pollution they create. d. toxic emissions are the best example of an externality.

c. self-interested paper producers will not consider the full cost of the dioxin pollution they create.

Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. An accountant would calculate the total profit for one photo frame to be a. 5 b. $15 c. $10 d. $25

d. $25

9. Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would be ________ and the equilibrium number of permits is _______. a. 25; 50 b. 50; 25 c. 75; 25 d. 100; 50

d. 100; 50

7. (Graph 13-5) Which of the following represent average fixed cost? a. A b. B c. C d. D

d. D

2. The impact of one person's actions on the well-being of a bystander is called a. an economic dilemma. b. deadweight loss. c. a multi-party problem. d. an externality.

d. an externality.

Private markets fail to account for externalities because a. externalities don't occur in private markets. b. sellers include costs associated with externalities in the price of their product. c. the government cannot easily estimate the optimal quantity of pollution. d. decisionmakers in the market fail to include the costs of their behavior to third parties.

d. decisionmakers in the market fail to include the costs of their behavior to third parties.

4. When, in our analysis of the gains and losses from international trade, we assume that a particular country is small, we are a. assuming the domestic price before trade will continue to prevail once that country is opened up to trade with other countries. b. assuming there is no demand for that country's domesticallyproduced goods by other countries. c. assuming international trade can benefit producers, but not consumers, in that country. d. making an assumption that is not necessary to analyze the gains and losses from international trade.

d. making an assumption that is not necessary to analyze the gains and losses from international trade.

When, in our analysis of the gains and losses from international trade, we assume that a particular country is small, we are a. assuming international trade can benefit producers, but not consumers, in that country. b. assuming there is no demand for that country's domesticallyproduced goods by other countries. c. assuming the domestic price before trade will continue to prevail once that country is opened up to trade with other countries. d. making an assumption that is not necessary to analyze the gains and losses from international trade.

d. making an assumption that is not necessary to analyze the gains and losses from international trade.

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price, a. the country will be neither an exporter nor an importer of the good. b. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither. c. the country will be an exporter of the good. d. the country will be an importer of the good.

d. the country will be an importer of the good.

1. The price of a good that prevails in a world market is called the a. absolute price. b. relative price. c. comparative price. d. world price.

d. world price.