Micro Final Exam

Evan can grow both roses and carnations in his garden. His production possibility table is shown below. If he is currently producing 110 roses, his opportunity cost of producing 40 more roses is: # of Roses # of Carnation 0 155 60 135 110 109 150 78 180 0

31 carnations

After several years of slow economic growth, world demand for petroleum began to rise rapidly in the 1990s. Much of the increase in demand was met by additional supplies from sources outside OPEC. OPEC during this time was unable to restrain output among members in its effort to lift oil prices. What best describes these events?

The rise in demand shifted the demand for oil to the right. As price rose, quantity of oil supplied rose.

European Union subsidizes its farmers. How do these subsidies make it difficult for farmers in developing economies to compete in the world farm market?

The subsidies shift the supply of EU farm goods to the right, lowering world prices of farm goods and the price developing country farmers can receive for their produce.

Economists believe that free riders often can undermine the social commitment of many in the society, causing voluntary policies to fail.

True

If the government's goal is to alter people's behavior through taxation, taxing goods with relatively elastic demand and supply would be most effective.

True

Price ceilings create shortages, but taxes do not

True

Increasing marginal opportunity cost means that the production possibility curve is:

bowed out so that for every additional unit of a good given up, you get fewer and fewer units of the other good.

Refer to the production possibility curve for Ricardia below.

can produce either 40 units of rye or 20 units of eggs

The ______________of oligopoly assumes that firms jointly behave as a monopolist in order to maximize joint profits.

cartel model

The term efficiency involves achieving a goal as:

cheaply as possible

The long-run average cost of producing 19 units of output is $56, and the long-run average cost of producing 20 units is also $56. These numbers illustrate

constant returns to scale.

When the going rate is $2.00 per hour, Ann wants to babysit 6 hours each week and Pat wants to babysit 4 hours each week. If the rate goes up to $4.00, Ann and Pat both double the number of hours they are willing to babysit each week. Based on this information, a combined supply curve will pass through the points:

price = $2.00, quantity supplied = 10 and price = $4.00, quantity supplied = 20.

U.S. baby boomers are beginning to retire and withdraw their savings for retirement. What effect should we expect this to have on equilibrium price and quantity of financial assets?

price falls and quantity also falls

Law of supply

price increases quantity supplied increases

Law of demand

price increases quantity demanded decreases

Markets coordinate economic activity through:

price mechanism

In a perfectly competitive market, firms set

quantities but not prices

If the law requires apartment building owners to lower rent, the law of supply predicts that, other things constant, the:

quantity of apartment units supplied will fall

Other things held constant in a competitive labor market, if workers negotiate a contract in which the employer agrees to pay an hourly wage rate of $17.85 while the market equilibrium hourly wage rate is $16.50, the:

quantity of workers supplied will exceed the quantity of workers demanded.

The Environment Ministry in Japan proposed a new carbon tax to meet Japan's obligations to reduce carbon dioxide emissions under the Kyoto Treaty. The tax would be levied on producers and importers of fossil fuels, and the expectation is that it would be largely passed on to consumers. The rationale for this tax is that it will

reduce a negative externality.

A company switches from a medical plan that covered all medical costs to a medical plan with a high deductible, making employees responsible for the first $1,500 of healthcare costs. Other things the same, a higher deductible is expected to:

reduce both medical claims and hospital admissions

Technological change

reduces average total cost by changing production techniques.

If your latest test grade and your average test grade on previous exams are equal, your average test grade will:

remain constant

An increase in quantity and an indeterminate change in price are consistent with a:

rightward shift in supply and demand.

When you purchase and eat a hamburger, no one else can eat the same hamburger. When you download a file on the Internet, the file is still available for others to download. Economists explain this difference between hamburgers and computer files by saying that the hamburger is:

rival in consumption whereas the computer file is not.

At a Chicago Bulls game 20,000 tickets were sold at $30 apiece. The game was sold out and some people did not get tickets. This suggests that the selling price

was below equilibrium.

The use of the phrase "other things constant" in supply and demand analysis indicates that:

we are considering changes in just one factor

When applied to labor markets, the law of supply suggests that an increase in the wages earned by nurses

will cause the quantity of nurses supplied to increase.

All of the following are possible explanations for the fact that on average women earn lower wages than men in the United States except -women choose to work in low-wage industries -women are more productive than men on average -women enter and leave the labor force more frequently than men, causing them on average to have less experience and a lower productivity than men. -women are discriminated against in labor markets

women are more productive than men on average.

Which of the following canNOT be determined by using a production possibility table? What combination of outputs can be produced How much less of one output must be produced if more of another output is produced What combination of outputs is best How much output can be produced from a given level of inputs

What combination of outputs is best

The supply of leather jackets would be expected to increase as a result of

a decrease in the cost of producing leather jackets.

A monopoly firm is different from a competitive firm in that

a monopolist can influence market price whereas a competitive firm cannot.

The statement "government should provide affordable health care coverage for every member of society" is

a normative statement.

Suppose an economic model indicates that "government raising payroll takes is a measure that can maintain current Social Security benefit levels for every retiree." This conclusion is:

a positive statement because raising payroll taxes is one way to maintain Social Security benefits.

The price of gasoline is generally higher in Hawaii than in the continental United States. Therefore, the Hawaiian legislature passed a law forbidding gas stations from charging a price higher than the average price of gas on the West Coast of the United States. This is an example of:

a price ceiling

New York City has been experiencing a housing emergency for quite some time. Apartments are difficult to come by. In fact, the vacancy rate has been below 5 percent since World War II. The most likely cause of the housing emergency is:

a price ceiling on rent lower than equilibrium price

A tariff is

a tax that government places on imported goods

Assuming government's goal is to benefit society as much as possible

actions with negative externalities should be restricted and actions with positive externalities should be encouraged.

Which of the following statements is true? Supply and demand tend to be much more elastic in the long run than in the short run. Supply and demand tend to be much more inelastic in the long run than in the short run. Supply is elastic in the short run, whereas demand is elastic only in the long run. Supply is inelastic in the short run, whereas demand is inelastic only in the long run.

Supply and demand tend to be much more elastic in the long run than in the short run.

How wages are determined is best described by

economic factors, with strong influences by political and social forces.

The first part of this graph exhibits

economies of scale

What kind of costs remain the same regardless of the level of production?

fixed

Long-run competitive equilibrium in an industry implies that no firm

has an incentive to enter or exit the industry

Those with more inelastic demands will bear a larger burden of a tax because they

have fewer substitutes for that good

An effective price ceiling is best defined as a price:

imposed by government below equilibrium price

The tax revenues of federal, state, and local governments have different sources, in that the federal government relies primarily on:

income taxes; state and local governments rely to a greater extent on sales and property taxes.

A reduction in the supply of labor will cause wages to

increase

If the marginal revenue of the next widget a firm produces is $50 and its marginal cost is $35, a firm should

increase production

The effect of higher gasoline prices is most likely to

increase the demand for hybrid cars and decrease the demand for the gas guzzler Hummer

An increase in the Federal minimum wage, assuming the minimum is higher than equilibrium wage and that all other things remain constant, will:

increase the number of unemployed

If long-run average total cost exceeds marginal revenue, a perfectly competitive firm will _____________

incur losses

A good whose demand is not very responsive to a change in price is called:

inelastic

The typical average variable cost curve

is U-shaped

Average variable cost is

is total variable cost divided by output.

Online music stores such as Apple's iTunes provide an alternative to buying CDs. The introduction of online music stores has shifted:

the demand curve of CDs to the left

The demand for labor is a derived demand because

the demand for labor comes from the demand for output

Your opportunity cost of taking this course is

the net benefit of the activity you would have chosen if you had not taken the course

Implicit cost refers to

the opportunity cost of factors of production provided by the owners of the firm.

If supply is elastic

the percentage change in quantity supplied is greater than the percentage change in price.

The law of demand states that the quantity demanded of a good is inversely related to the price of that good. Therefore, as the price of a good goes up

the quantity demanded goes down.

The law of supply states that, other things equal, as the price of a good goes up

the quantity supplied goes up.

The difference between a three-digit North American Industry Classification System (NAICS) industry and a six-digit NAICS industry is that

the six-digit industry is more specifically defined than the three-digit code

If the United States imposes tariffs on steel imports:

the supply of the imported steel shifts to the left and raises its market price

The elasticity of labor demand is higher when

there are many substitutes for labor in the production process.

If a production possibility curve representing a trade-off between a grade in English and a grade in math has a negative slope, we know that:

there is an inverse relationship between grades in English and grades in math.

All of the following are justifications for government intervention except: too much competition informational problems externalities public goods

too much competition

The answers to an economy's three central economic problems are determined by the interaction of

-economic forces -political forces -social forces

A firm's total variable cost increases from $4,000 to $4,020 as the firm increases its output from 400 to 401 units. What is the marginal cost of producing the 401st unit?

$20

If fixed costs are $960, variable costs are $1,440, and output is 12, then average total cost equals:

$200.

Suppose each of the following rows represents the choice faced by policy makers given the current set of U.S. institutions and technology. What is the opportunity cost of reducing unemployment from 8 percent to 4 percent? Unemployment Inflation 10 3 8 4 6 5 5 7 4 10

6 percentage points of inflation

Constant returns to scale means that long-run

ATC does not change as output increases.

Which of the following would not move either the supply or the demand curve in the market for housing?

An increase in real-estate prices

Which of the following is most likely to reduce the supply of labor?

An increase in the value placed on leisure by workers

Quantity restrictions benefit which group the most?

Existing suppliers

An excise tax on alcohol causes the supply of alcohol to decrease and the price of alcohol to decrease

False

Economists generally prefer direct regulation to incentive-based programs because explicit regulation tends to be more efficient

False

If a tax is legally required to be paid by sellers, sellers typically bear the full burden of the tax.

False

Which of the following costs is independent of output?

Fixed Costs

Which of the following will move the supply curve for housing in Florida, a popular retirement state, to the left?

Higher construction costs

Assume the absolute value of the price elasticity of demand for cigarettes is 0.50. If the tobacco lobby is successful in reducing a tax on the price of cigarettes by 10 percent, the quantity demanded will:

Increase by 5 percent

A person who has auto insurance is likely to drive a little less safely and to take less care in parking the car in a safe place off the street. This is an example of a problem called

Moral Hazard

Strategic decision making is most likely to occur in which market structure?

Oligopoly

Why are patents important to those who hold them?

Patents act as a barrier to entry, allowing monopoly profits.

Both opponents of and proponents of government intervention most likely would agree with which of the following? Government can and does create proper incentives to correct for externalities. Property rights eliminate the need for government. The market is inherently fair. Property rights must exist for a market to operate.

Property rights must exist for a market to operate

If a negative externality exists in the production of paper and paper is sold in a perfectly competitive market, at the equilibrium output:

additional net gains to society are possible by reducing the output of paper

Diseconomies of scale are associated with

an upward sloping long-run average total cost curve

When a hurricane destroys a significant portion of an apple crop

apple prices rise, and quantity sold falls

Private property rights

are essential elements of a market economy.

The U shape of the average total cost curve is because

average productivity rises and then falls.

If marginal cost is less than average total cost:

average total cost is decreasing with output.

In the short run, average variable cost equals

average total cost minus average fixed cost

At the level of output where marginal product begins to fall, marginal costs will

begin to rise

The government's antitrust suit against Microsoft charged Microsoft with

being a monopoly and using that monopoly power in a predatory way.

The distinction between demand and the quantity demanded is best made by saying that

demand is represented graphically by a curve and quantity demanded is a point on that curve

Suppose that college tuition is higher this year than last year and that more students are enrolled in college this year than last year. Based on this information, we can best conclude that:

despite the increase in price, quantity demanded rose due to some other factor changing

Using 100 workers and 10 machines, a firm can produce 10,000 units of output; using 250 workers and 25 machines, the firm produces 21,000 units of output. These facts are best explained by:

diseconomies of scale

If a machine cost $50,000 initially and is expected to last for 20 years but is worth $60,000 after one year because it is in short supply, an economist most likely would say that

during the first year the machine had no cost; it provides an implicit revenue of $10,000 to the firm

Positive expected profits

encourage people to supply goods.

A perfectly competitive firm's marginal revenue is

equal to the selling price

The marginal benefit from consuming another unit of a good

equals the increase in total benefits from consuming the unit.

The marginal cost of consuming another unit of a good

equals the increase in total cost when another unit is consumed.

In the Justice Department's antitrust case against Microsoft, the Court ruled that there was

evidence of unfair business practices, and Microsoft was a monopoly.

The total cost of taxation to consumers and producers generally _______ the amount of tax revenue collected by government.

exceeds

Households supply factors of production to business and are paid by business for doing so. The market where this interaction takes place is called the ________________.

factor market

Suppose that at the current price consumers would like to purchase 10 million large-screen televisions and 15 million are available. When the market coordinates the demand and supply for large-screen televisions, the price of large-screen televisions will:

fall

Because there are very significant economies of scale involved in making flat screen television sets in a competitive market, the price of flat screen TVs will

fall as output expands because long-run average total costs are lower for higher quantities.

Suppose farmers can use their land to grow either wheat or corn. The law of supply predicts that an increase in the market price of wheat will cause:

farmers to substitute wheat for the production of corn.

Suppose the average total cost of producing semiconductors in a factory of a particular size declines over time as more semiconductors are produced. This drop in average total cost might best be explained by:

learning by doing

If the government imposes an excise tax on cars equal to $5,000 per automobile, the supply of automobiles will shift to the:

left and the price of automobiles will increase by an unknown amount.

A decrease in quantity and price is consistent with a:

leftward shift in demand keeping supply constant

An increase in price and decrease in quantity are consistent with a

leftward shift in supply and no shift in demand

Suppose a cosmetics company increases the price of eyeliner by 10 percent and as a result the quantity demanded of eyeliner decreases by 2.5 percent. The absolute value of the price elasticity of demand for eyeliner is:

less than 1.

In 2009 the electronics retailer Circuit City closed its stores. If we assume this was a short-run decision, the most likely explanation for it is that the price of a typical product sold at Circuit City stores was

less than the average variable cost of producing the toy

To be successful in increasing prices for their product, members of a cartel

limit output

A market incentive plan

makes the price of a resource reflect not only the marginal private costs but also the marginal social costs of consuming that resource

The rule for making optimal decisions is that an activity should be increased until:

marginal benefits equal marginal costs

to engage in economic reasoning one must compare

marginal cost and marginal benefit

In the cartel model of oligopoly, the firms would decide how much to produce where

marginal cost equals marginal revenue.

Welfare capitalism is an economic system in which

markets operate, but government regulates markets significantly.

Diseconomies of scale are associated with

monitoring costs

What is one of the necessary conditions for perfect competition?

no barriers to entry

The law of diminishing marginal productivity does not apply in the long run because

no inputs are fixed in the long run

Researchers have found that the income of obese women is about 17 percent lower than that of women who are of the recommended weight. This result implies that

obese women earn less either because they are less productive or because employers discriminate against them.

Real-world markets

often involve deception, cheating, and inaccurate information.

Natural monopoly exists when

one firm can supply the entire quantity demanded at lower cost than two or more firms.

When your wages rise, the

opportunity cost of an hour of leisure increases.

In a market economy, society relies on the ___________________ of individuals to determine what, how, and for whom to produce

self-interest

If the market for tires is monopolistically competitive

sellers can influence the market price of the product

Singapore has a system of traffic regulation called Electronic Road Pricing, in which traffic congestion is reduced by charging motorists who drive into the city center during certain hours of the day. Charging for use of a road is:

shifting from a third-party-payer-market to one in which individual consumers have to pay for their consumption of road usage, thus seeking to reduce excess demand.

To keep the price of gas from rising quickly after Katrina, the government instituted price ceilings on the price of gasoline in some states. These price ceilings caused ______ in the gasoline market

shortages

__________and ____________ forces affect the way the invisible hand works

social and political

Tariffs can be thought of as indirect:

subsidies to domestic producers.

Suppose OPEC announces that it will increase production. Using supply and demand analysis to predict the effect of increased production on equilibrium price and quantity, the first step is to show the:

supply curve shifting to the right.

The distinction between supply and the quantity supplied is best made by saying that:

supply is represented graphically by a curve and quantity supplied as a point on that curve