Micro Exam 3 Practice Exam Questions

Which of the following is an explanation for the high labor-productivity in the United States?

plentiful capital resources

Refer to the graphs. Stanville has a comparative advantage in producing

product B

Refer to the graph, which shows the domestic demand and supply curves for a specific product in a hypothetical nation called Econland. At what price will Econland be neither importing nor exporting the product?

$1.50 (at equilibrium)

The table gives a monopsonist's marginal-revenue-product schedule for labor in columns 1 and 2 and the supply schedule for labor in columns 1 and 3. What is the marginal labor cost of the fourth worker?

$15

Refer to the table. What is the marginal resource cost if the firm employs a 12th worker?

$19

Refer to the given supply information facing a single firm in a particular labor market. The marginal resource (labor) cost of the third worker is

$25

The accompanying tables show data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied, and Qd is domestic quantity demanded. Assuming that Alpha and Beta are the only two nations in the world, the equilibrium world price of steel must be between

$3 and $2

In 2014, the average income for households in the United States was about

$68,426.

Resource pricing is important because:

1) resource prices are a major determinant of money incomes 2) resource prices allocate scarce resources among alternative uses 3) resource prices, along with resource productivity, are important to firms in minimizing their costs

Suppose you deposit $5,000 in a bank that pays 10 percent interest compounded twice a year. The actual annual interest rate you receive is

10.25

The number of countries belonging to the World Trade Organization (WTO), as of 2015, is about

161

In firm X labor costs are 85 percent of production costs, while in firm Y labor costs are 40 percent of production costs. A 20 percent increase in wages would increase production costs by

17% in firm X and 8% in firm Y

A firm operating in a purely competitive labor market has the marginal revenue product schedule shown in the table. If the wage rate decreases from $17 to $13, by how much will the firm expand employment?

2 workers

The table gives marginal product data for resources a and b. The output of these independent resources sells in a purely competitive market at $1 per unit. Assuming the prices of resources aand b are $5 and $8 respectively, what is the least costly combination of resources for the firm to employ in producing 192 units of output?

3 of a and 4 of b

In 2010, the top 1 percent of households in the U.S. owned about what percentage of total wealth in the nation?

35

Suppose that the available quantity of a certain type of farmland is 400,000 acres, and the demand for this land is given in the table. How much of the farmland will be rented?

400,000 acres

Poverty is a condition where a person or family does not have the means to

meet basic needs

Suppose the world economy is composed of just two countries: Italy and Greece. Each can produce steel or chemicals, but at different levels of economic efficiency. The production possibilities curves for the two countries are shown in the graphs. If Italy and Greece open up trade with each other, which of the following terms of trade is mutually beneficial?

9 tons of chemicals = 5 tons of steel

Refer to the diagram. If this labor market is monopsonistic, the wage rate and level of employment will be

A and F, respectively.

Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that

Alpha should specialize in Y and Beta in X.

AFL-CIO stands for

American Federation of Labor-Congress of Industrial Organizations

Which of the following statements best illustrates the time-value of money concept?

Bob is willing to forgo receiving $100 today in order to receive $110 next month

Which of the income distributions in the accompanying table is closest to describing the United States (as of 2014)?

C (when income is at 4% and highest quintile is the highest)

f a firm faces an upsloping labor supply curve (and there is no union or minimum wage), its

MRC curve is also upsloping

A firm is hiring resources X, Y, and Z in the profit-maximizing amounts when

MRPx/Px equals MRPy/Py equals MRPz/Pz equals 1.

Which of the following statements is correct?

Over 90 percent of the workers in the United States are currently covered by Social Security.

In a market system, private ownership of land does not lead to which of the following results?

Private owners will face no cost in using land for one purpose rather than another.

Which of the following statements best describes a protective tariff?

an excise tax that is designed to put foreign producers at a competitive disadvantage in selling in domestic markets

What is an example of a social insurance program? What is an example of a public assistance program?

Social Security; Supplemental Nutrition Assistance Program

Which of the following will not shift the demand curve for labor?

a change in the wage rate

Use the graph to answer the question about the labor resource market faced by producers of good X. What will shift D1 to D2?

a decrease in the price of a substitute input (if output effect > substitution effect)

Some economists claim that unions reduce economic efficiency by

imposing restrictions on the kinds of jobs workers may perform

The wages and salaries that people earn differ partly because of differences in

ability

The poverty rate in the United States was

about the same in 2014 as in 1993

An example of derived demand in the auto industry is the demand for

auto workers

Suppose a firm is considering the purchase of a machine which would increase its total revenues by $10,000 for the year. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. The investment should

be undertaken because the rate of return is 5 percent greater than the interest rate.

The accompanying tables show data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied, and Qd is domestic quantity demanded. Assuming that Alpha and Beta are the only two nations in the world, the equilibrium world price must be higher than $1 because, at $1,

both nations want to import steel

If an employer has to raise the wage rate of workers in order to employ more labor, then the marginal labor cost curve of the employer

lies above the supply curve of labor

Suppose Steve Stone takes a job with Zemo Manufacturing, whose labor contract with its unions has an agency shop clause (30 days). Steve

can decide against joining the union but nevertheless will have to pay union dues or donate an equivalent amount to an approved charity.

A nation with abundant capital resources tends to be an exporter of

capital-intensive products

Which of the following is an example of a capital-intensive commodity?

chemicals

The American Medical Association, a physicians' union, is a good example of a(n)

craft union

A decrease in the supply curve of nurses could be accounted for by all of the following except a(n)

cut in the wages of nurses

Refer to the graph. If the Lorenz curve shifted from (d) to (b), then the Gini ratio and the degree of income inequality would

decrease

Critics contend that imposing a minimum wage higher than the equilibrium wage in a competitive industry would

decrease the number of workers employed in that industry

The taste-for-discrimination model examines an employer's prejudice and discrimination in hiring by using tools of

demand theory

If a prejudiced white employer behaves as if there is a disutility from hiring an African-American worker, then this disutility is measured by the

discrimination coefficient.

In the taste-for-discrimination model,

discriminatory employers behave as if employing nonpreferred-race workers adds to costs.

A nation will neither export nor import a specific product when its

domestic price equals the world price

Since 1960, real hourly compensation in the US has approximately

doubled

If a factor of production has no production cost and has a fixed supply, then payments to that factor constitute what economists call

economic rent

The unemployment compensation social insurance program is a

federal-state program

The principal-agent problem as it applies to labor employment refers to

firms having the profit motive, while workers may be shirking on the job

In 2014, a household with an annual income of $75,000 would find itself in the

fourth quintile of the household income distribution.

Which of the following factors is not relevant in explaining the persistence of wage differentials?

free public education

Refer to the table representing Darcy's bank account. If she deposited $1,000 into her account at the beginning of year 1 and made no further deposits or withdrawals, the $1,191 value at the end of year 3 represents the

future value of the $1,000 deposit made at the beginning of year 1.

Which of the following is not a source of loanable funds?

government budget deficits

When the distribution of income is adjusted for noncash transfers, the income distribution shows

greater equality

According to the Consider This box "Superstars," the high pay of superstars reflects

high marginal revenue productivity.

Refer to the graph. The producer illustrated

hires labor in a competitive market, since it must pay each worker the market wage rate

The supply curve of loanable funds is upsloping because

households are willing to save more at high interest rates than they are at low interest rates

Refer to the graph, which shows the domestic demand and supply curves for a specific product in a hypothetical nation called Econland. When the world price for this product is $0.50, Econland will

import 400 units (on demand line)

"Redistributing income in order to have a more equal distribution in the United States would result in a higher level of total consumer satisfaction." This statement is based on the concept that

incomes are subject to diminishing marginal utility

A technological improvement that causes an increase in the marginal product of a resource will

increase the demand for the resource

Critics of the minimum wage argue that an increase in the minimum wage rate above the equilibrium rate of a purely competitive labor market would

increase unemployment in the labor market

If the nominal wages of carpenters rose by 5 percent in 2013 and the price level increased by 3 percent, then the real wages of carpenters

increased by 2 percent

A college graduate who works at a firm is also working part-time on a master's degree in business and expects to be paid a higher wage after earning the degree. The basic reason for this wage differential is

investment in human capital

The equation MP L / PL = MP C / PC

is a necessary, but not sufficient, condition for the maximization of profits.

A major difference between social insurance and welfare is that social insurance

is normally financed by earmarked payroll taxes, while welfare is financed out of general tax revenues

Statistical discrimination

is profitable but not malicious.

Refer to the given diagram, in which line AB is the U.S. production possibilities curve and AC is its trading possibilities curve. The international exchange ratio between beef and cheese (terms of trade)

is the absolute value of the slope of line AC.

Income mobility

is the movement of individuals and households from one income quintile to another over time.

A nation's export supply curve for a specific product

is upsloping

According to some supporters of the minimum wage, it has very small or even nonexistent negative employment effects because

it reduces turnover among minimum-wage workers, prompts employers to use them more efficiently, and thus raises their average productivity

The wages of plumbers are likely to increase when

licensing standards for the occupation are increased

A firm is employing inputs such that the marginal product of labor is 25 and the marginal product of capital is 40. The price of labor is $5, and the price of capital is $8. If the firm wants to minimize costs, then it should

make no change in resource use

A firm that is hiring labor in a purely competitive labor market and selling its product in a purely competitive product market will maximize its profit by hiring labor until

marginal revenue product equals marginal resource (labor) cost

Assuming a competitive resource market, a firm is hiring resources in the profit-maximizing amounts when the

marginal revenue product of each resource is equal to its price

Discrimination that results in minorities being paid less than whites for identical work would be an example of which explanation for wage differentials?

market imperfections

Refer to the diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. Sd + Q is the product supply curve after an import quota is imposed. Assuming there is no tariff, the import quota

may either increase or decrease the total revenues of foreign producers, depending on the elasticity of domestic demand

Which of the following is an example of a noncash transfer that is typically not included in the income-distribution data?

medicare

Over the long run, real earnings per worker can increase only at about the same rate as the economy's rate of growth of

output per worker

"The nation needs to prevent foreign nations from selling their excess goods in our nation at a price below cost so we can save American firms." This quotation would be most closely associated with which protectionist argument?

protection against dumping

The earned-income tax credit

provides a cash payment to low-income working families if their tax credit exceeds their tax liability.

Suppose that in some year nominal interest rates are less than the rate of inflation. This means that

real interest rates are negative

Social insurance programs partially replace income that has been lost due to the following, except

resignation from a job

The fact that monopoly and monopsony exist in resource markets means that

resource prices do not always measure contributions to output

Ending discrimination against minority groups in educational processes and in employment situations would cause total domestic output to

rise because of an increase in the productivity of the labor force

Economic Profits

serve in the short run as an incentive to guide production decisions, but indicate the existence of barriers to entry in the long run

A craft union attempts to increase wage rates by

shifting the labor supply curve to the left

The real interest rate can be estimated by

subtracting the rate of inflation from the nominal interest rate

If Congress were to pass a law exempting interest on saving from taxation, the

supply of loanable funds would increase and the equilibrium interest rate would fall

An excise tax on imported items is known as a

tariff

A normal profit is

the "price" required to retain entrepreneurial talent in some particular line of production

Minority workers are underrepresented and have less access to certain high-paying occupations. This illustrates

the crowding model

The marginal revenue product schedule is

the firm's resource demand schedule

Which of the following measurement issues makes interpretation of U.S. poverty rates difficult?

the high cost of living in urban areas tends to result in the understatement of poverty

Other things equal, the interest rate on a loan will be larger,

the higher the risk involved

Refer to the diagrams. Assume that only wheat can be grown on the three grades of land shown in Figures (a), (b), and (c). Also assume that identical amounts of labor, capital, and other needed inputs are used in farming each grade of land. On the basis of these three figures, we can say that

the land shown in Figure (a) only is a "free good"

What happens when technological advance makes available a new highly productive capital good for which MP/P is greater than that of labor for which it is a substitute resource?

the new capital will replace labor because it reduces the firms' costs

Which of the following is correct?

the nominal and the real wage may both fall

Which will not be a determinant of the price elasticity of demand for an input?

the price of input

Frederic Bastiat's satirical argument against protectionism called for protecting domestic producers from

the sun

If two nations have straight-line production possibilities curves,

there will be a basis for mutually advantageous trade whether the slopes are equal or not

The Gini ratio is calculated by dividing the area between the Lorenz curve and the diagonal by the

total area below the diagonal

A union representative observed that if the union members' wages were increased by some proportion, the workers would eventually suffer a greater than proportional decline in employment. This statement could best be explained if

union labor can easily be replaced with capital

Which of the following would be considered part of income?

wages and salaries

Supplemental Nutrition Assistance Program (SNAP)

was previously known as the food-stamp program

One main point of Frederic Bastiat's satire is that

we should not try to produce what we can get from others at a lower cost

Suppose the MRP of a firm's 12th worker is $22 and the worker's marginal wage cost is $16. We can say with certainty that the firm

will find it profitable to hire more workers

Assumptions: (1) the labor force comprises 9 million men and 9 million women workers; (2) the economy has 3 occupations, X, Y, and Z, each having identical demand curves for labor; (3) male and female workers are homogeneous with respect to their labor-market capabilities; (4) women are discriminated against by being excluded from occupations X and Y and are confined to Z; and (5) aside from discrimination, the economy is competitive, and workers seek to maximize their earnings.

will increase real domestic output.

Refer to the diagram. Land

would be a free resource if demand were D4 or less.

Refer to the diagram, where curves (a) through (e) are for five different countries. The Gini Ratio is:

zero in country (a-straight line) and 1 in country (e-bottom right corner)

Use the graph to answer the question about the labor resource market faced by producers of good X. What will shift D2 to D1?

an increase in the price of substitute input (if the output effect>substitution effect)