LSU Econ 2000 Final Keniston
Kevin Garnett, famous for winning an NBA championship with the Boston Celtics, signed a contract that promised additional payments after his retirement. Seven years after he retires, he will be paid $5,000,000. If Kevin Garnett uses an annual interest rates of 5%, what is the present value of the $5,000,000 payment on the day that he retires?
3,553,406
Bernard Madoff attracted many people to invest their savings with his investment company, Bernard L. Madoff Investment Securities LLC. He developed a track record of delivering high returns to his clients, and he reportedly promised returns of up to 20% per year. If you invested your retirement savings of $500,000 with Mr. Madoff, expecting the 20% interest rate, and that you were going to retire in 15 years, how much money would you expect to have in your retirement savings account when you retired?
7,703,510
Refer to the table above. If Evan eats 2 slices of pizza, how much consumer surplus does get? A) $10 B) $22 C) $18 D) $6
A. $10
If a firm can sell 10 units of output for $15 each or 11 units at $14 each, the additional revenue from selling the eleventh unit is ________. A) $4 B) $154 C) $14 D) $150
A. $4
April runs a small bakery in northern Minnesota. Her most popular item is her homemade cranberry scone. As a pricing experiment, April raises the price of her raspberry scones by 5 percent and sees daily sales fall by 2 percent. From this experiment, April can estimate the price elasticity of demand for her cranberry scones as approximately ________. A) 0.4 percent B) 2 percent C) 2.5 percent D) 5 percent
A. 0.4 percent
Refer to the figure above. At what level of output does the firm maximize profits? A) 30 units B) 20 units C) 0 units D) 10 units
A. 30 units
Refer to the figure above. When the demand curve for flash drives is D and the supply curve of flash drives is S1, what is the shortage in the market if the price is $4? A) 40 units B) 0 units C) 10 units D) 20 units
A. 40 units
Which of the following is most likely to be an example of causation? A) A firm producing compact fluorescent light bulbs installs new machinery. Their per-day production of light bulbs increases. B) A student wins money by scratching a ticket with a particular coin. He decides to scratch all tickets with the same coin in the future. C) A soccer player scores four goals when he wears red socks. He concludes that the red socks helped him score the goals. D) The crime rate is high in a country. The literacy rate is high as well.
A. A firm producing compact fluorescent light bulbs installs new machinery. Their per-day production of light bulbs increases.
Suppose Z is a normal good. The equilibrium price and quantity of Z in the year 2013 was $25 and 60 units, respectively. In 2017, the equilibrium price of Z had increased to $35 but the equilibrium quantity had decreased to 50 units. Other things remaining the same, which of the following could explain this change? A) A leftward shift of the supply curve of Z B) A rightward shift of the supply curve of Z C) A leftward shift of the demand curve for Z D) A rightward shift of the demand curve for Z
A. A leftward shift of the supply curve of Z
Which of the following best describes equilibrium? A) A situation where no economic agent would benefit by changing his or her behavior B) A situation where the government intervenes to allocate resources C) A situation where only one individual or firm makes an optimal decision D) A situation where economic agents do not optimize as they do not have perfect information
A. A situation where no economic agent would benefit by changing his or her behavior
If Project X has a cost of $6 and provides a benefit of $10 and Project Y has a cost of $25 and provides a benefit of $27, which of the following statements is true? A) An individual can optimize by choosing Project X. B) An individual can optimize by choosing Project Y. C) Switching from Project Y to Project X decreases net benefit by $2. D) Switching from Project X to Project Y increases net benefit by $2.
A. An individual can optimize by choosing Project X
Scenario: Ron plays loud music, which prevents his neighbor from studying. He knows that his neighbor values studying at $5,000, while the cost of soundproofing Ron's room is $3,000. Refer to the scenario above. If Ron has the right to listen to music at night, how much does his neighbor need to pay him to stop playing music? A) Any amount between $3,000 and $5,000 B) Any amount between $5,000 and $8,000 C) Any amount below $3,000 D) Any amount above $5,000
A. Any amount between $3,000 and $5,000
The following figure shows the market demand curve for penicillin, an antibiotic medicine. Initially, the market was supplied by perfectly competitive firms. Later, the government granted the exclusive right to produce and sell penicillin to one firm. The figure also shows the marginal revenue curve (MR) of the firm once it begins to operate as a monopoly. The marginal cost is constant at $3, irrespective of the market structure. Refer to the figure above. What is the change in consumer surplus when the market changes from perfect competition to a monopoly? A) Consumer surplus decreases by 135 units. B) Consumer surplus increases by 90 units. C) Consumer surplus decreases by 45 units. D) Consumer surplus increases by 30 units.
A. Consumer surplus decreases by 135 units
The federal government spends most of its revenue on which top two categories? A) National defense and Social Security B) National defense and education C) Social Security and education D) Social Security and Medicare
A. National defense and Social Security
Which of the following applies to both perfect competition and oligopoly without product differentiation? A) P = MR = MC B) Large number of firms C) Absence of barriers to entry D) Firms produce a differentiated product
A. P = MR = MC
Which of the following pairs of goods is likely to be considered complements? A) Pens and writing pads B) Nokia and Samsung cell phones C) Laptops and electric heaters D) Motorcycles and typewriters
A. Pens and writing pads
For 2017, the U.S. individual income tax has seven different marginal tax rates ranging from 10 percent to 39.6 percent. The U.S. individual income tax is what type of tax? A) Progressive tax B) Proportional tax C) Property tax D) Regressive tax
A. Progressive tax
Which of the following is an example of marginal analysis? A) To determine the optimal number of workers, a firm calculates the net benefits of hiring an extra worker. B) To choose the optimal apartment to rent, an individual estimates the net benefits of renting an apartment close to his place of work. C) To determine the optimal amount of fertilizer to be used, a farmer calculates the total benefits of using a given amount of fertilizer. D) To determine the optimal output that a firm should sell, the manager calculates the total revenue earned by selling different levels of output.
A. To determine the optimal number of workers, a firm calculates the net benefits of hiring an extra worker.
An increase in the demand for a good is represented by ________. A) a rightward shift of a demand curve B) a rightward movement along a demand curve C) a leftward movement along a demand curve D) a leftward shift of a demand curve
A. a rightward shift of a demand curve
To carry out an optimization analysis, ________. A) all costs are required to be converted to the same unit of measurement B) different types of costs are measured in different units C) only indirect costs incurred in a project are to be estimated D) only direct costs incurred in a project are to be estimated
A. all costs are required to be converted to the same unit of measurement
An externality occurs when ________. A) an economic activity affects third parties not engaged in the activity B) the government regulates production and consumption decisions C) the quantity supplied of a good exceeds the quantity demanded D) the quantity demanded of a good exceeds the quantity supplied
A. an economic activity affects third parties not engaged in the activity
The acai berry and products made from it are a popular dietary supplement, believed to reverse diabetes and lead to weight loss. Suppose that a peer-reviewed medical study reveals that there are no health benefits from consuming acai berry products. The likely effect of this medical study will be to ________. A) cause a decrease in demand B) cause an increase in demand C) not cause a change in demand but to increase quantity demanded D) not cause a change in demand but to decrease quantity demanded
A. cause a decrease in demand
Suppose Apple raises the cost of downloading a song from iTunes from $0.99 per song to $1.49 per song. This price increase will cause a(n) ________. A) decrease in quantity demanded B) increase in quantity demanded C) increase in demand D) decrease in demand
A. decrease in quantity demanded
Anne has chosen how many bagels and how many units of cream cheese she would buy this month. She has $20 to spend on these two goods. Suppose that her chosen combination, the marginal benefit per dollar for bagels is $6, and her marginal benefit per dollar for cream cheese is $10. If she decides to buy more bagels and less cream cheese, ________. A) her marginal benefit per dollar for bagels will decrease, and her marginal benefit per dollar for cream cheese will increase B) her marginal benefit per dollar for bagels will increase, and her marginal benefit per dollar for cream cheese will decrease C) her marginal benefit per dollar for bagels will decrease, and her marginal benefit per dollar for cream cheese will remain the same D) her marginal benefit per dollar for bagels will increase, and her marginal benefit per dollar for cream cheese will remain the same
A. her marginal benefit per dollar for bagels will decrease, and her marginal benefit per dollar for cream cheese will increase
The quantity produced in a monopolistically competitive market is ________ than the quantity produced in a perfectly competitive market, and the price charged in a monopolistically competitive market is ________ than the price charged in a perfectly competitive market. A) lower; higher B) lower; lower C) higher; higher D) higher; lower
A. lower; higher
An outcome is Pareto efficient if ________. A) no individual can be made better off without making someone else worse off B) the benefits of the outcome are equally distributed among all participants C) the costs of the outcome are equally shared by all participants D) an individual can be made better off without making someone else worse off
A. no individual can be made better off without making someone else worse off
The view of a spectacular sunset on a beach is a(n) ________. A) non-rival good B) excludable good C) rival but non-excludable good D) rival and excludable good
A. non-rival good
A shortage occurs in a market when ________. A) price is lower than the equilibrium price B) supply exceeds demand C) price is higher than the equilibrium price D) the marginal utility of consumption is negligible
A. price is lower than the equilibrium price
In a perfectly competitive market, ________. A) sellers produce identical goods B) each seller charges a different price for its product C) bargaining over prices is a common phenomenon D) there are restrictions on the entry of new firms
A. sellers produce identical goods
Gabrielʹs demand for chocolate bars is inelastic. If the price of chocolate bars increases, he will ________. A) spend more amount of money on chocolate than before B) spend the same amount of money on chocolate as before C) spend less amount of money on chocolate than before D) buy the same number of chocolate bars as before
A. spend more amount of money on chocolate than before
A marginal tax rate is the ________. A) tax rate on the last dollar of income earned B) total amount of taxes paid divided by taxable income C) total amount of taxes paid D) tax rate on the first dollar of income earned
A. tax rate on the last dollar of income earned
Refer to the figure above. If the price is more than $1.50 but at most $2.00, the firm should produce ________. A) the quantity at which the marginal cost equals the price, even though the firm would make a loss B) 0 units to break even C) 0 units to avoid paying the variable cost D) the quantity at which the marginal cost equals the price to avoid paying the fixed cost
A. the quantity at which the marginal cost equals the price, even though the firm would make a loss
Refer to the figure above. Diminishing marginal returns begin to occur when ________. A) the third worker is hired B) the fourth worker is hired C) the fifth worker is hired D) the second worker is hired
A. the third worker is hired
If firms in an oligopoly industry producing differentiated products collude, ________. A) they collectively produce the monopoly output level and divide the monopoly profits B) they collectively produce up until Price = Marginal cost C) they produce the same output level as noncollusive oligopoly, but deter entry D) they increase output and decrease price to deter entry
A. they collectively produce the monopoly output level and divide the monopoly profits
Refer to the figure above. If Lesleyʹs budget for burgers and ice creams is cut by half, Lesleyʹs new budget constraint ________. A) will cross the vertical axis at 5, and will cross the horizontal axis at 3 B) will start from the same point on the vertical axis, but will cross the horizontal axis at 3 C) will start from the same point on the horizontal axis, but will cross the vertical axis at 5 D) will cross the vertical axis at 20, and will cross the horizontal axis at 12
A. will cross the vertical axis at 5, and will cross the horizontal axis at 3
Refer to the figure above. What is the social surplus if the market is in equilibrium? A) $75 B) $150 C) $100 D) $50
B. $150
Refer to the figure above. If the market price of the product is $3.25, what is the firmʹs total cost? A) $2,100 B) $2,700 C) $3,575 D) $3,900
B. $2,700
Scenario: Mr. Olivander has a monopoly on supplying magic wands. The table below shows the demand schedule for magic wands per day. Refer to the scenario above. If the marginal cost of a magic wand is $10, what price should Mr. Olivander charge to maximize his profit? A) $65 B) $35 C) $20 D) $55
B. $35
John has to choose between two jobs: one that offers him $50 per hour and one that offers him $35 per hour. The opportunity cost of choosing the job that offers him $50 per hour is ________. A) $1.5 per hour B) $35 per hour C) $15 per hour D) $85 per hour
B. $35 per hour
If the opportunity cost of time is $20 per hour and an individual spends 20 hours in commuting every month, the opportunity cost of his commute is ________. A) $200 per month B) $400 per month C) $1 per month D) $20 per month
B. $400 per month
Refer to the figure above. What is the loss in the market-wide consumer surplus when the price of wine changes from $9 per bottle to $18 per bottle? A) $144,000 B) $57,000 C) $30,000 D) $0
B. $57,000
Refer to the figure above. What is the maximum profit that the firm can make? A) $30 B) $60 C) $90 D) $180
B. $60
Refer to the figure above. If a per-unit tax of $3 is imposed on the sale of Good X, what is the tax revenue received by the government? A) $10 million B) $60 million C) $20 million D) $12 million
B. $60 million
Refer to the figure above. What is the market-wide consumer surplus when the market price of wine is $9 per bottle? A) $210,000 B) $60,000 C) $180,000 D) $90,000
B. $60,000
Scenario: A bag contains ten green balls, five blue balls, and fifteen yellow balls. If an individual picks a green ball from the bag, she wins $200. If she picks either a blue ball or a yellow ball, she loses $300. Refer to the scenario above. What is the expected value of the game? A. $27 B. -$133.33 C. -$15.64 D. $35.75
B. -$133.33
The following figure shows the marginal revenue (MR) and demand curves faced by a monopolist. Refer to the figure above. If the monopolist faces a constant marginal cost of $6, what is the optimal quantity that it should produce? A) 40 units B) 30 units C) 60 units D) 20 units
B. 30 units
Refer to the table above. Assuming that the market consists of only these three sellers, what is the market supply when the price is $2 per loaf? A) 41 loaves B) 39 loaves C) 52 loaves D) 89 loaves
B. 39 loaves
Scenario: Mr. Olivander has a monopoly on supplying magic wands. The table below shows the demand schedule for magic wands per day. Refer to the scenario above. If the marginal cost of a magic wand is $10, how many wands should Mr. Olivander sell to maximize his profit? A) 1 B) 5 C) 9 D) 12
B. 5
There are about 2,000 nail salons in New York City. Most salons are small businesses and offer a wide array of services. Based on this information, which of the following best describes the structure of this market in New York City? A) An oligopoly with differentiated products B) A monopolistic competition C) An oligopoly with homogeneous products D) A monopoly
B. A monopolistic competition
Which of the following is NOT an example of a natural monopoly? A) Interstate highway construction B) Alcohol sales C) Drinking water distribution D) Electricity transmission
B. Alcohol sales
In Louisiana, florists must pass a special licensing exam to be able to open a retail flower business. They must know the proper storage temperature for plants, wiring methods for various flowers and how to construct a cascade bouquet. Aspiring florists must purchase study materials, and take a written exam with a relatively low pass rate; if they succeed they pay $100 a year. The Pelican state is the only state in the country that requires a license to sell flowers, a distinction that has become a point of contention among florists who say it legitimizes their trade and state lawmakers who feel Louisiana is too overwhelmed with a dizzying number of professional license requirements. State lawmakers wanted to cut back on the number of licenses by eliminating the floral one. That has drawn the ire of florists who take pride in regulating their profession - by weeding out people who know little about floral arrangements. Adapted from: https://www.foxnews.com/politics/effort-to-eliminate-florist-licenses-in-louisiana-becomes-a-thorny-issue Refer to the scenario above. Which condition of a perfectly competitive market could most directly be hampered by the licensing requirement? A) Each seller produces a negligible fraction of the total market supply. B) Free entry to and exit from the market. C) Each seller produces an identical good or service. D) None. The market for beauticiansʹ services satisfy all the condition for perfect competition.
B. Free entry to and exit from the market
Which of the following is an example of a public good? A) Natural forests B) National defense C) Music downloads D) Designer clothes
B. National defense
Refer to the scenario above. In the graph below, the socially optimal level of production occurs at which point? A) Q3 B) Q2 C) Q1 D) Q0
B. Q2
Which of the following is a difference between an oligopoly with differentiated products and a monopolistically competitive market? A) Firms in an oligopoly with differentiated products charge a price lower than average total cost in the long run, while firms in a monopolistically competitive market charge a price higher than average total cost in the long run. B) There are huge barriers to entry in an oligopoly with differentiated products, while there are minimal barriers to entry in a monopolistically competitive market. C) Firms in an oligopoly with differentiated products charge a price higher than marginal cost in the long run, while firms in a monopolistically competitive market charge a price lower than marginal cost in the long run. D) There are no barriers to entry in an oligopoly with differentiated products, while there are huge barriers to entry in a monopolistically competitive market.
B. There are huge barriers to entry in an oligopoly with differentiated products, while there are minimal barriers to entry in a monopolistically competitive market.
The market outcome in a duopoly with homogeneous products is similar to that in ________. A) a monopoly B) a perfectly competitive market C) a monopolistically competitive market D) an oligopoly with differentiated products
B. a perfectly competitive market
Compared to a firm under perfect competition, a monopolist ________. A) charges less and produces more B) charges more and produces less C) charges more and produces more D) charges less and produces less
B. charges more and produces less
Natural monopolies are characterized by facing a(n) ________. A) increasing average cost curve B) declining average cost curve C) horizontal demand curve D) constant average cost curve
B. declining average cost curve
The U.S. coal industry has endured several years of economic losses as natural gas has replaced coal in electricity generation and other uses. At the same time, the solar panel industry in the United States has recorded large positive economic profits. If these markets are perfectly competitive, we would expect ________. A) neither entry nor exit from the U.S. coal industry but entry into the solar panel industry B) exit from the U.S. coal industry and entry into the solar panel industry C) exit from the U.S. coal industry but no entry into the solar panel industry D) entry into both the U.S. coal industry and the solar panel industry
B. exit from the U.S. coal industry and entry into the solar panel industry
If firms in a perfectly competitive market are realizing economic losses in the short run, ________. A) entry will occur, the market supply curve will shift out, and the market price will rise B) exit will occur, the market supply will shift in, and the market price will rise C) entry will occur, the market supply curve will shift out, and the market price will fall D) exit will occur, the market supply will shift in, and the market price will fall
B. exit will occur, the market supply will shift in, and the market price will rise
The buyers of a good will want to purchase it as long as their willingness to pay for the good is ________. A) equal to zero B) greater than or equal to the price C) greater than zero D) less than the price
B. greater than or equal to the price
The equilibrium quantity in a perfectly competitive market is determined at the point of ________. A) tangency between the demand and supply curves B) intersection of the demand and supply curves C) intersection of the supply curve and the quantity axis D) intersection of the demand curve and the quantity axis
B. intersection of the demand and supply curves
Price discrimination is never perfect because it ________. A) increases consumer surplus B) is impossible to know every consumersʹ willingness to pay C) lowers the profits of producers to an extent D) is regulated by the government
B. is impossible to know every consumers' willingness to pay
The increasing popularity of hot dogs in a food joint has pushed up their prices, making it unaffordable for many students living in the surrounding areas. This is an example of a ________. A) positive externality B) pecuniary externality C) free-rider problem D) negative externality
B. pecuniary externality
In equilibrium, ________. A) the ratio of total benefits to income should be identical across all goods B) the ratio of marginal benefits to price should be identical across all goods C) the ratio of total benefits to price should be identical across all goods D) the ratio of marginal benefits to income should be identical across all goods
B. the ratio of marginal benefits to price should be identical across all goods
The demand for chocolate is perfectly inelastic in Carritos Island. If a tax is imposed on chocolate, ________. A) the deadweight loss due to taxation will be one B) the tax burden will fall entirely on buyers C) consumers will stop consuming chocolate D) the deadweight loss due to taxation will be high
B. the tax burden will fall entirely on buyers
Consider a market where the demand curve is downward sloping and the supply curve is upward sloping (so they are neither vertical nor horizontal). If the consumersʹ willingness to pay for the hundredth unit and the sellerʹs willingness to accept for the 175th unit are both $5.00, then ________. A) there is an excess demand of 75 units at the price of $5.00 B) there is an excess supply of 75 units at the price of $5.00 C) the equilibrium price is $5.00 D) the equilibrium quantity is 100 units
B. there is an excess supply of 75 units at the price of $5.00
Scenario: Jim and Jane are the only residents of an apartment building. The figures below show their demand curves for security guards (in hours of duty per day) who staff the entrance to the apartment. To answer some of the questions below, it will be useful to find the equations of the two lines in the figure. Refer to the figure above. What is the maximum amount of money Jim and Jane together would pay to have 24 hours of security guardsʹ presence? A) $32.50 per hour B) $16.50 per hour C) $10.00 per hour D) $28.75 per hour
C. $10.00 per hour
Refer to the figure above. If a per-unit tax of $3.00 is imposed on the sale of Good X, what is the size of the deadweight loss due to taxation? A) $5 million B) $7.5 million C) $15 million D) $30 million
C. $15 million
Scenario: Wendy and John each deposit $2,000 in a bank account at different rates of interest. Wendy receives interest on her deposit at an annual rate of 6 percent, while John receives interest at an annual rate of 9 percent. Refer to the scenario above. What will be the future value of Wendy's deposit after 3 years? A. $2,764.12 B. $2,278.64 C. $2,382.03 D. $2,150.91
C. $2,382.03
Refer to the scenario above. The socially optimal price for this good is ________, while the market price of it is equal to ________. A) $20; $10 B) $14; $20 C) $20; $14 D) $14; $10
C. $20; $14
Refer to the figure above. If the market price of the product is $3.25, what is the firmʹs revenue? A) $2,700 B) $2,100 C) $3,900 D) $3,575
C. $3,900
Refer to the figure above. When the demand curve for flash drives is D and the supply curve of flash drives is S1, the equilibrium price is ________. A) $4 B) $3 C) $5 D) $7
C. $5
Which of the following is an example of legal market power? A) The presence of a network externality B) Economies of scale C) A patent D) Control of a key resource
C. A patent
Scenario: The market for used cell phones is very popular in Barylia. However, several phones available in this market are of an inferior quality, and it is often impossible to differentiate between a good-quality phone and a poor-quality phone. Refer to the scenario above. Which of the following problems is likely to arise in the market for used cell phones in Barylia? A. The paradox of thrift B. The tragedy of the commons C. Adverse selection D. Moral hazard
C. Adverse selection
Which of the following is likely to be observed among unemployed individuals if government offers generous unemployment benefits? A. Increased motivation to look for a job B. An increase in the acceptance of low-paying jobs C. Decreased motivation to look for a job D. A decrease in current consumption
C. Decreased motivation to look for a job
Las Vegas, Nevada, is a popular vacation destination for residents of Hawaii. If the Hawaiian economy experiences strong economic growth and, as a result, household incomes increase on average by 10 percent, what will likely happen to the demand for airplane tickets from Hawaii to Las Vegas? A) No shift in demand will occur; quantity demanded will decrease. B) No shift in demand will occur; quantity demanded will increase. C) Demand will increase. D) Demand will decrease.
C. Demand will increase
Which of the following statements is true of optimization? A) Economic agents can optimize only when they are able to perfectly estimate all future costs and benefits. B) Optimization analysis only relates to the financial budget of an economic agent. C) Economic agents who optimize attempt to choose the best feasible option, given the information that they have. D) Individuals who optimize do not consider costs when choosing the most feasible alternative.
C. Economic agents who optimize attempt to choose the best feasible option, given the information that they have.
If the demand for gem-quality diamonds decreases AND the supply of gem-quality diamonds decreases, what can be said about equilibrium price and quantity in this market? A) Equilibrium quantity will rise, but the change in equilibrium price is uncertain. B) Equilibrium price and quantity will both fall. C) Equilibrium quantity will fall, but the change in equilibrium price is uncertain. D) Equilibrium price and quantity will both rise.
C. Equilibrium quantity will fall, but the change in equilibrium price is uncertain.
Which of the following is true of perfect competition in the long run? A) Firms earn positive accounting profit because of government regulations. B) Firms earn negative economic profit because of free entry and exit of firms. C) Firms earn zero economic profit because of free entry and exit of firms. D) Firms earn positive economic profit because of economies of scale.
C. Firms earn zero economic profit because of free entry and exit of firms
The following figure shows price versus quantity for a market. Refer to the figure above. On what interval of quantity does total revenue increase when quantity increases? A) From 0 to Q1 B) From 0 to Q3 C) From 0 to Q2 D) Total revenue is always increasing when quantity increases
C. From 0 to Q2
Which of the following graphs correctly represents a natural monopoly market? A) Market 1 B) Market 2 C) Market 3 D) Both market 1 and market 3
C. Market 3
Which of the following statements correctly highlights the difference between microeconomics and macroeconomics? A) Microeconomics describes what economic agents actually do, whereas macroeconomics describes what economic agents ought to do. B) Microeconomics primarily deals with positive analysis, whereas macroeconomics primarily deals with normative analysis. C) Microeconomics deals with a small part of the economy, whereas macroeconomics deals with aggregate economic performance. D) Microeconomics is descriptive, whereas macroeconomics is advisory.
C. Microeconomics deals with a small part of the economy, whereas macroeconomics deals with aggregate economic performance.
Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, and the shift in demand is greater than the shift in supply. Then in comparison to the initial equilibrium, the new equilibrium will be characterized by ________. A) a higher price and a lower quantity B) a lower price and a higher quantity C) a lower price and quantity D) the same price and a lower quantity
C. a lower price and quantity
Due to ongoing budget shortfalls, the city of Detroit has suspended services, such as street cleaning and maintenance of city-owned properties in several neighborhoods. In response, some homeowners in these neighborhoods sweep the streets, replace street lights, and mow the grass on city-owned lots. These actions by homeowners represent ________. A) a positive externality in consumption B) deadweight loss C) a positive externality in production D) a pecuniary externality
C. a positive externality in produciton
The Organization of the Petroleum Exporting Countries (OPEC) is an example of a ________. A) duopoly that produces homogeneous products B) monopoly C) cartel D) duopoly that produces differentiated products
C. cartel
Dawn has preferences for minor league baseball games and NASCAR races. Minor league baseball tickets are $10 per game and NASCAR tickets are $20/race. Dawnʹs monthly budget of $90 allows her to buy five minor league baseball tickets and two NASCAR tickets. At this consumption bundle, her marginal benefit of the last baseball game is 30 and the marginal benefit of the last NASCAR ticket is 40. Dawn ________. A) could increase her total benefit by buying NASCAR race tickets and fewer minor league baseball tickets B) is maximizing her total benefit with her current consumption bundle C) could increase her total benefit by buying more minor league baseball tickets and fewer NASCAR race tickets D) Cannot answer the question given the information provided
C. could increase her total benefit by buying more minor league baseball tickets and fewer NASCAR race tickets
Rural/Metro-a private, subscription-based fire protection and emergency service provider-was founded by Lou Witzeman in 1948. Witzeman lived in an unincorporated suburb of Phoenix that did not provide fire-fighting services. Witzeman canvassed his neighbors and found that nearly all of them promised to pay him $10/year to provide fire protection. After investing his last $900 in a truck and firefighting equipment, most of his neighbors refused to pay him. This is an example of a ________. A) government provision B) common pool resource C) free-rider problem D) club good
C. free-rider problem
U.S. Code Title 18 § 1696 states Whoever establishes any private express for the conveyance of letters or packets, or in any manner causes or provides for the conveyance of the same by regular trips or at stated periods over any post route which is or may be established by law, or from any city, town, or place to any other city, town, or place, between which the mail is regularly carried, shall be fined not more than $500 or imprisoned not more than six months, or both. The Code of Federal Regulation (CFR) Title 39 Section 310.2 states It is generally unlawful under the Private Express Statutes for any person other than the Postal Service in any manner to send or carry a letter on a post route or in any manner to cause or assist such activity. Violation may result in injunction, fine or imprisonment or both and payment of postage lost as a result of the illegal activity. Under these laws, the U.S. Postal Service ________. A) competes in a monopolistic competition against other private express mail carriers B) has a comparative advantage over private express mail C) has a monopoly power over private express mail D) competes in an oligopoly market for private express mail
C. has a monopoly power over private express mail
Economics is primarily the study of ________. A) the state, nation, government, and politics and policies of governments B) the mental functions and behavior of individuals and groups C) how agents choose to allocate scarce resources and how these choices affect society D) the problems related to the existence and evolution of society
C. how agents choose to allocate scarce resources and how these choices affect society
A model ________. A) can never be used to predict the future, but it helps explain the past B) can be tested without data or statistics C) is often based on simplifying assumptions that are not necessarily true D) is a more complex representation of reality than a theory
C. is often based on simplifying assumptions that are not necessarily true
Refer to the scenario above. To restore the socially optimal outcome in this market, the government should ________. A) not intervene in the market, as the market will provide the socially optimal outcome by itself B) pay a $6 subsidy per unit on this good C) levy a $10 tax per unit on this good D) levy a $6 tax per unit on this good
C. levy a $10 tax per unit on this good
Mark works as a business development officer for a leading electronics company. His main task is to meet potential clients at their offices and set up business deals with them. Mark earns a fixed salary every month irrespective of the number of clients approached and deals made. As his boss does not cross-check the number of clients he sees in a day. Mark often does not see all the clients that he is supposed to. His behavior is an example of ______________. A. a pecuniary externality B. adverse selection C. moral hazard D. a positive externality
C. moral hazard
The entry of new firms into a market will ________ if the market power of the existing firms is small. A) increase the market price B) reduce the market price C) not change the market price D) first reduce, and then increase the market price
C. not change the market price
The best alternative use of a resource is referred to as its ________. A) optimization cost B) social cost C) opportunity cost D) market price
C. opportunity cost
The entry of new firms into a market will ________ if the market power of the existing firms is large. A) increase the market price B) not change the market price C) reduce the market price D) first reduce, and then increase the market price
C. reduce the market price
The demand for a good is elastic. This means that if there is a 10% change in price of this good, ________. A) the quantity demanded will change 10% as well B) the quantity demanded will not change at all C) the quantity demanded will change more than 10% D) the quantity demanded will change less than 10%
C. the quantity demanded will change more than 10%
If negative externalities are present in a market, ________. A) the average cost of production exceeds the marginal cost of production at all output levels B) the marginal social cost of production is lower than the marginal private cost C) the quantity supplied in the market is larger than the socially optimal level D) the market price is higher than the socially optimal price
C. the quantity supplied in the market is larger than the socially optimal level
When buyers and sellers optimize in a perfectly competitive market, ________. A) only consumer surplus is maximized B) social surplus is minimized C) social surplus is maximized D) only consumer surplus is minimized
C.social surplus is maximized
Refer to the table above. What is the firmʹs marginal cost per unit of output when it produces the 155th unit of the good? A) $1.33 B) $1.50 C) $0.66 D) $1
D. $1
Refer to the figure above. If the monopolist faces a constant marginal cost of $6, at what price should it sell its output to maximize profits? A) $10 B) $6 C) $2 D) $12
D. $12
Refer to the figure above. If the supply curve for flash drives shifts from S1 to S2, with no change in the demand curve, the new competitive equilibrium quantity is ________ units. A) 20 B) 40 C) 60 D) 10
D. 10
Which market is more likely to be perfectly competitive? A) Luxury watches in Switzerland B) Vodka in Russia during the Soviet union era C) Electric cars in the United States D) Bowls of white rice in Chinatown, New York City
D. Bowls of white rice in Chinatown, New York City
Refer to the scenario above. The deadweight loss arising from hand-harvesting is represented by area in the graph below. A) A B) B C) C D) D
D. D
The development of genetically modified soybean seeds such as Roundup Ready seeds lowered tillage costs for soybean growers. How will this technological advance affect the supply of soybeans? A) Decrease in only quantity supplied B) Decrease in supply C) Increase in only quantity supplied D) Increase in supply
D. Increase in supply
Refer to the figure above. The loss in consumer surplus due to the imposition of the tax is given by the areas ________. A) JBHF AND ABH B) CAE AND EAHF C) EAG AND GHF D) JBIE and BIA
D. JBIE and BIA
Which of the following statements is true of marginal analysis? A) Marginal analysis involves the calculation of the total net benefits of all the available alternatives. B) Marginal analysis is a tool used in optimization using total value. C) Marginal analysis of alternatives will mostly give an outcome different from optimization using total value. D) Marginal analysis compares the consequences of doing one more step of something.
D. Marginal analysis compares the consequences of doing one more step of something
Which of the following suggests that a competitive firm earns zero economic profits? A) P = MC > ATC B) P>MC>ATC C) P>MC=ATC D) P = MC = ATC
D. P = MC = ATC
Refer to the figure above. Suppose B1 is the original budget constraint of a consumer. A change in the budget constraint from B1 to B2 indicates ________. A) an increase in the price of sweaters B) a decrease in the consumerʹs income. C) an increase in the consumerʹs income D) a decrease in the price of sweaters
D. a decrease in the price of sweaters
Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right, both by the same degree. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by ________. A) a lower price and the same quantity B) a lower price and quantity C) the same price and quantity D) a higher price and the same quantity
D. a higher price and the same quantity
A steel-producing factory in North Palladia generates large amounts of pollution during its production process. A per-unit tax on the production of steel that equals the marginal ________ of steel production will entirely internalize the externality. A) private cost B) social cost C) external benefit D) external cost
D. external cost
An omitted variable is a variable that ________. A) is removed from a study as it can lead to the problem of reverse causality B) is purposely left out as it does not aid an economic analysis C) does not cause other variables in a study to change when it changes D) has been left out, and if included, would explain why the variables considered in a study are correlated
D. has been left out, and if included, would explain why the variables considered in a study are correlated
All else being equal, an increase in the price of Nike Air Jordan XXXI Fly Low shoes will cause an ________. A) increase in quantity demanded B) increase in demand C) increase in supply D) increase in quantity supplied
D. increase in quantity supplied
Two goods are said to be substitutes when a fall in the price of one good ________. A) does not affect the demand for the other good B) leads to a rightward shift in the demand for the other good C) leads to a rise in the price of the other good D) leads to a leftward shift in the demand for the other good
D. leads to a leftward shift in the demand for the other good
Public goods are ________ in consumption. A) excludable but non-rival B) rival but non-excludable C) excludable and rival D) non-excludable and non-rival
D. non-excludable and non-rival
An optimizing consumer makes her purchase decisions based on ________. A) the benefits from the first dollar spent on consumption B) the total benefits per dollar spent at various levels of consumption C) the total benefits at various levels of consumption D) the benefits per dollar spent at the margin
D. the benefits per dollar spent at the margin
Scenario: There are several pen manufacturers in Corinthia. However, the pens sold by each manufacturer have a unique design. Refer to the scenario above. How will the demand for pens faced by the existing pen manufacturers in Corinthia be affected if new firms enter the industry in the long run? A) The demand faced by the existing firms will increase. B) The demand curve faced by the existing firms will become perfectly elastic. C) The demand curve faced by the existing firms will become perfectly inelastic. D) The demand faced by the existing firms will decrease.
D. the demand faced by the existing firms will decrease
Consumer surplus is ________. A) the product of the willingness to pay for a good and the price paid for the good B) the sum of the willingness to pay for a good and the price paid for the good C) the ratio of the willingness to pay for a good to the price paid for the good D) the difference between the willingness to pay for a good and the price paid for the good
D. the difference between the willingness to pay for a good and the price paid for the good
The concept of diminishing marginal utility states that ________. A) the demand for a commodity is more dependent on income than on price B) the demand for a commodity declines as its price increases C) lower levels of consumption give lower level of utility D) the willingness to pay for an additional unit declines as more of a good is consumed
D. the willingness to pay for an additional unit declines as more of a good is consumed
Several businesses and organizations in Hawaii, including hotels, practice what is called kamaʹaina pricing. Under this pricing strategy, customers with a valid Hawaii driverʹs license are charged the lowest price, customers with a valid military identification card are charged slightly higher prices, and all other customers are charged the highest price for the identical good or service. This is an example of ________. A) simple monopoly pricing B) second-degree price discrimination C) first-degree price discrimination D) third-degree price discrimination
D. third-degree price discrimination
Refer to the figure above. If the price of a burger doubled, Lesleyʹs new budget constraint ________. A) will start from the same point on the horizontal axis, but will cross the vertical axis at 5 B) will start from the same point on the horizontal axis, but will cross the vertical axis at 20 C) will start from the same point on the vertical axis, but will cross the horizontal axis at 12 D) will start from the same point on the vertical axis, but will cross the horizontal axis at 3
D. will start from the same point on the vertical axis, but will cross the horizontal axis at 3
Present value = Payment T periods from now/(1 + interest rate)^T
General present value formula
one agent in a transaction knows about a hidden characteristic of a good and decides whether to participate in the transaction on the basis of this information; ex. "lemons" used in car market
adverse selection
information available to buyers and sellers differs
asymmetric information
Future value = principal x (1 + r)^T
compound interest formula
The long-run supply curve for a firm in a perfectly competitive industry is ________. A) positively sloped B) vertical C) horizontal D) negatively sloped
horizontal
actions of some economic agents are unknown to other agents; ex. crop insurance
moral hazard
present value of benefits minus present value of costs
net present value
amount of money that would need to be invested today to produce that future payment; aka discounted value of a future payment
present value
individual measures of utility or happiness
utils