Microeconomics: Exam 2

There is always a dead weight loss associated with a tax: A. True B. False C. Uncertain D. Partially true

A. True

If the University Chamber Music Society decides to raise ticket prices to provide more revenue to finance concerts, the Society is assuming that the demand for tickets is: A. parallel to the horizontal axis. B. shifting to the left. C. inelastic. D. elastic.

C. inelastic.

Total revenue falls as the price of a good is raised, if the demand for the good is: A. Elastic B. Inelastic C. Perfectly, Unitary Elastic D. Perfectly inelastic

A. Elastic

The price of gasoline is often volatile because: A. Demand is relatively inelastic so changes in supply have a large effect on price B. Supply is relatively elastic so changes in demand have a large effect on price C. Demand is relatively elastic so changes in supply have a large effect on price D. Supply is relatively inelastic so changes in demand have a large effect on price

D. Supply is relatively inelastic so changes in demand have a large effect on price

When average variable cost is at a minimum: A. Marginal cost is at a maximum B. The average product of labor is at a minimum C. The marginal product of labor is at a minimum D. The average product of labor is at a maximum

D. The average product of labor is at a maximum

At an output level of 50 units per day a firm has average total costs of $60 and average variable costs of $35. Its total fixed costs are: A. $925 B. $1,250 C. $1,750 D. $3,000

B. $1,250

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were: A. $100,000 and its economic profits were zero. B. $200,000 and its economic profits were zero. C. $100,000 and its economic profits were $100,000. D. zero and its economic loss was $200,000.

B. $200,000 and its economic profits were zero.

If average variable cost is $74 and total fixed cost is $100 at 5 units of output, then average total cost at this output level is: A. $91 B. $94 C. $97 D. $100

B. $94

Consider the demand curve above. If the price is A, then the total revenues of sellers would be the area: A. DABE B. 0ABC C. 0DEF D. CBEF

B. 0ABC

Marginal cost can be defined as the: A. Change in total fixed cost resulting from one more unit of production B. Change in total cost resulting from one more unit of production C. Change in average total cost resulting from one more unit of production D. Change in average variable cost resulting from one more unit of production

B. Change in total cost resulting from one more unit of production

If network externality is present for a product, then A. Consumers may be less likely to buy the product to avoid switching costs B. Consumers may be more likely to buy the product because it is useful and creates value C. Consumers may be less likely to buy the product to avoid market failure D. Producers may be more likely to supply the product to create path dependence

B. Consumers may be more likely to buy the product because it is useful and creates value

As output increases, average fixed costs: A. Increase B. Decrease C. Remain constant D. First increase and then decrease

B. Decrease

Cash expenditures a firm makes to pay for resources are called: A. Implicit costs B. Explicit costs C. Average cost D. Opportunity costs

B. Explicit costs

The table below shows a consumer's utility schedule.Refer to the above table. Marginal utility begins to diminish with the consumption of the: A. Fifth unit B. Fourth unit C. Third unit D. Second unit

B. Fourth unit

If pizza is a normal good, a price decrease will cause you to consume more pizza because of: A. Substitution effect B. Income effect C. Both Substitution effect and Income effect D. Neither of these two effects

B. Income effect

(5) Marginal product of labor refers to the: A. Last unit of output produced by labor at the end of each period B. Increase in output resulting from employing one more unit of labor C. Total output divided by the number of labor employed D. Smallest unit of the output produced by labor

B. Increase in output resulting from employing one more unit of labor

Marginal product of labor refers to the: A. Last unit of output produced by labor at the end of each period B. Increase in output resulting from employing one more unit of labor C. Total output divided by the number of labor employed D. Smallest unit of the output produced by labor

B. Increase in output resulting from employing one more unit of labor

At the point where diminishing marginal returns of an input sets in, the: A. Average product starts to decrease B. Marginal product starts to decrease C. Total product starts to decrease D. Average product exceeds the marginal product

B. Marginal product starts to decrease

Suppose that football tickets at your university are given away for free, and that there are still empty seats for all games. Ignoring all other costs of going to the games, you should continue attending until your: A. Total utility stops increasing B. Marginal utility begins to diminish C. Marginal utility stops increasing D. Total utility reaches zero

B. Marginal utility begins to diminish

Assume that a consumer purchases a combination of product A and product B such that the MUa/Pa = 8 and MUb/Pb = 6. To maximize utility without spending more money, the consumer should: A. Purchase less of product A and more of product B B. Purchase more of product A and less of product B C. Purchase more of both product A and product B D. Make no change in purchases of products A and B

B. Purchase more of product A and less of product B

Refer to the above table. The addition of which unit has the greatest marginal utility? A. Fifth B. Sixth C. Seventh D. Eighth

B. Sixth

(2) Which situation is consistent with the law of diminishing marginal utility? A. The more pizza Joe eats, the more he enjoys an additional slice B. The more pizza Joe eats, the less he enjoys an additional slice C. Joe's marginal utility from eating pizza becomes positive after eating three slices D. Joe's marginal utility from eating pizza reaches a maximum when total utility is zero

B. The more pizza Joe eats, the less he enjoys an additional slice

The equilibrium price and quantity in a competitive market usually produce allocative efficiency because: A. all consumers who want the good are satisfied. B. marginal benefit and marginal cost are equal at that point C. equilibrium ensures an equitable distribution of output. D. the excess of goods produced at equilibrium guarantees that all will have enough.

B. marginal benefit and marginal cost are equal at that point

Refer to the diagram. The vertical distance between ATC and AVC reflects: A. the law of diminishing returns. B. the average fixed cost at each level of output. C. marginal cost at each level of output. D. the presence of economies of scale.

B. the average fixed cost at each level of output

The optimal combination of pizza and coke you should consume is the one A. where your total utility of pizza equals your total utility of coke. B. where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke. C. where your marginal utility of pizza equals your marginal utility of coke. D. where your marginal utility of pizza equals your total utility of pizza, and your marginal utility of coke equals your total utility of coke.

B. where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke.

At an output of 20,000 units per year, a firm's variable costs are $80,000 and its average fixed costs are $3. The total costs per year for the firm are: A. $80,000 B. $100,000 C. $140,000 D. $240,000

C. $140,000

If you know that with 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then total cost at this output level is: A. $93.75 B. $97.78 C. $750 D. $880

C. $750

The elasticity of supply for a product will be 2 if: A. A 1 percent decrease in the price causes a 0.2 percent decrease in quantity supplied B. A 2 percent decrease in price causes a 1 percent decrease in quantity supplied C. A 1 percent decrease in price causes a 2 percent decrease in quantity supplied D. A 2 percent decrease in price causes a 2 percent decrease in quantity supplied

C. A 1 percent decrease in price causes a 2 percent decrease in quantity supplied

Refer to the above graph of cost curves. Total fixed cost at output level Q2 is measured by: A. 0B B. AC C. CD D. DE

C. CD

In the graph above LRTC = long-run total cost. The firm is experiencing: A. Economies of scale B. Diseconomies of scale C. Constant returns to scale D. Minimum efficient scale

C. Constant returns to scale

"Consumer equilibrium or "Equimarginal utility" refers to the situation when the consumer is getting: A. The highest total utility out of spending a given budget on various goods B. The highest marginal utility out of spending a given budget on various goods C. Equal marginal utility values per dollar from each product consumed D. Equal total utility values from each product consumed

C. Equal marginal utility values per dollar from each product consumed

In deciding what to buy, the consumer will choose the good with the: A. Highest marginal utility B. Lowest price to marginal utility ratio C. Highest marginal utility-to-price ratio D. Lowest marginal utility-to-price ratio

C. Highest marginal utility-to-price ratio

(4) The main difference between the short run and the long run is that: A. Firms earn zero profits in the long run B. The long run always refers to a time period of one year or longer C. In the short run, some inputs are fixed and some are variable D. In the long run, all inputs are fixed

C. In the short run, some inputs are fixed and some are variable

Assume that Tonya consumes only two products, pizza and potato chips, out of a given budget. Both are normal goods for Tonya. If the price of pizza decreases, then Tonya's consumption of pizza will: A. Decrease due to the income effect B. Decrease due to the substitution effect C. Increase due to the income effect D. Increase due to the law of diminishing marginal utility

C. Increase due to the income effect

Competitive markets satisfy: A. Maximum economic efficiency B. The greatest economic surplus C. Maximum economic surplus and efficiency D. Efficiency since marginal benefit equals marginal cost

C. Maximum economic surplus and efficiency

In the long run a firm will choose a plant size that has the: A. Minimum of average fixed costs B. Capacity to produce the largest quantity of the product C. Minimum average total cost of producing the target level of output D. Maximum level of resource use per unit of the total product of output

C. Minimum average total cost of producing the target level of output

When the government imposes price control and price ceilings, A. All people lose B. Deadweight loss may or may not be present C. Some people benefit, some lose D. There is no loss of economic efficiency

C. Some people benefit, some lose

The vertical distance between the TC curve and TVC curve is equal to: A. ATC B. AVC C. TFC D. MC

C. TFC

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is: A. Allocative efficiency B. Productive efficiency C. The consumer surplus D. The producer surplus

C. The consumer surplus

Economic efficiency is A. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is not at a maximum. B. a market outcome in which the marginal benefit to consumers of the last unit produced is greater than its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. C. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. D. a government outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

C. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

Refer to the graph above representing the purely competitive market for a product. When the market is at equilibrium, the total economic surplus would be represented by the area: A. a + b + c + d B. a + b + c C. a+b D. b + c

C. a+b

If the income elasticity of demand for lard is -3.00, this means that: A. lard is a substitute for butter. B. lard is a normal good. C. lard is an inferior good D. more lard will be purchased when its price falls.

C. lard is an inferior good

An effective price floor on wheat will: A. force otherwise profitable farmers out of business. B. result in a shortage of wheat. C. result in a surplus of wheat. D. clear the market for wheat.

C. result in a surplus of wheat.

A state government wants to increase the taxes on cigarettes to increase tax revenue. Because cigarettes are addictive, we would expect its demand to be: A. Elastic, thus the government's cigarette-tax revenues would rise with a tax increase B. Elastic, thus the government's cigarette-tax revenues would fall with a tax increase C. Inelastic, thus the government's cigarette-tax revenues would fall with a tax increase D. Inelastic, thus the government's cigarette-tax revenues would rise with a tax increase

D. Inelastic, thus the government's cigarette-tax revenues would rise with a tax increase

The question is based on the following table that provides information on the production of a product that requires one variable input. Refer to the above table. There are negative marginal returns from the input, when the: A. Fifth unit of input is added B. Sixth unit of input is added C. Seventh unit of input is added D. Ninth unit of input is added

D. Ninth unit of input is added

Which would be an implicit cost for a firm? The cost: A. Of worker wages and salaries for the firm B. Paid for leasing a building for the firm C. Paid for production supplies for the firm D. Of wages foregone by the owner of the firm

D. Of wages foregone by the owner of the firm

Refer to the above graph. It shows the total product (TP) curve. At which point is marginal product smallest? A. Point a B. Point b C. Point c D. Point d

D. Point d

In which of the following instances will total revenue decline? A. Price rises and supply is elastic. B. Price falls and demand is elastic. C. Price rises and demand is inelastic. D. Price rises and demand is elastic.

D. Price rises and demand is elastic.

Economic surplus in a market is the sum of_____ surplus and_____ surplus. In a competitive market, with many buyers and sellers and no government restrictions, economic surplus is at a_____ when the market is in_____. A. consumer; producer; maximum; disequilibrium B. consumer; producer; minimum; equilibrium C. consumer; government; maximum; equilibrium D. consumer; producer; maximum; equilibrium

D. consumer; producer; maximum; equilibrium

If the price elasticity of demand for a product is unity, a decrease in price will: A. have no effect upon the amount purchased. B. increase the quantity demanded and increase total revenue. C. increase the quantity demanded but decrease total revenue. D. increase the quantity demanded, but total revenue will be unchanged.

D. increase the quantity demanded, but total revenue will be unchanged.

If a legal ceiling price is set above the equilibrium price: A. a shortage of the product will occur. B. a surplus of the product will occur. C. a black market will evolve. D. neither the equilibrium price nor the equilibrium quantity will be affected.

D. neither the equilibrium price nor the equilibrium quantity will be affected.

A $1 tax on a gallon of gasoline will: A. shift the supply curve of gas downward B. shift the demand curve of gas downward C. shift the demand curve of gas upward D. shift the supply curve of gas upward

D. shift the supply curve of gas upward

If a network externality is present for a product, then A. producers may be less likely to supply the product because it is less unique. B. producers may be more likely to supply the product to create path dependence. C.consumers may be less likely to buy the product to avoid switching costs. D. consumers may be less likely to buy the product to avoid market failure. E. consumers may be more likely to buy the product because it is more useful.

E. consumers may be more likely to buy the product because it is more useful.

When a firm doubles its inputs and finds that its output has more than doubled, this is known as: A. Economies of scale B. Constant returns to scale C. Diseconomies of scale D. A violation of the law of diminishing returns

A. Economies of scale

A study of mass-transit systems in American cities revealed that in the long run revenues generally decline after substantial fare increases. This would suggest that: A. The demand for mass transit is price-elastic in the long run B. The demand for mass transit is price-inelastic in the long run C. Mass-transit service deteriorates in the long run as price rises D. There are few good substitutes for such systems in urban areas

A. The demand for mass transit is price-elastic in the long run

Refer to the above graph. If the firm is producing at Q1, the area 0ADQ1 represents: A. Total costs B. Total variable costs C. Total fixed costs D. Average total costs

A. Total costs

The law of diminishing returns indicates that: A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. B. because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped. C. the demand for goods produced by purely competitive industries is downsloping. D. beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

To the economist, total cost includes: A. explicit and implicit costs. B. neither implicit nor explicit costs. C. implicit, but not explicit, costs. D. explicit, but not implicit, costs.

A. explicit and implicit costs.

Any cost that remains unchanged as output changes represents a firm's A. fixed cost. B. marginal cost. C. opportunity cost. D. variable cost.

A. fixed cost.

Consumer and producer surplus measure the _____ benefit rather than the _____ benefit. A. net; total B. marginal; additional C. subjective; objective D. total; net

A. net; total

Deadweight loss is A. the reduction in economic surplus resulting from a market not being in competitive equilibrium. B. the reduction in consumer expenditure resulting from market failure. C. the reduction in sales revenue resulting from market distortions. D. a measure of market equity.

A. the reduction in economic surplus resulting from a market not being in competitive equilibrium.

An implicit cost is A.a nonmonetary opportunity cost. B.a cost incurred in the short run. C.the highest-valued alternative that must be given up to engage in an activity. D.a cost that remains constant as output changes. E.a cost that changes as output changes.

A.a nonmonetary opportunity cost.

When the price of a product changes, A.it only causes a substitution effect by changing the relative price of the product. B.it only causes an income effect by changing the purchasing power of the consumer. C.it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well. D.it changes the relative price of the product causing a network effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.

C.it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.

The question is based on the following table that provides information on the production of a product that requires one variable input.Refer to the above table. Marginal product is zero when the total product is: A. 0 B. 5 C. 56 D. 58

D. 58

Diminishing marginal returns occurs as a firm adds more variable inputs to at least one fixed input because: A. The ability or quality of the variable inputs hired decreases as more are hired B. The firm must lower the price of its product when it produces more units of output C. The per unit cost it must pay for variable inputs increases as more inputs are hired D. As more variable inputs are hired, the amount of the fixed input per variable input decreases

D. As more variable inputs are hired, the amount of the fixed input per variable input decreases

At any level of output: A. Average variable cost will exceed average total cost in the short run B. Marginal cost will exceed average variable cost by the level of average fixed cost C. Average variable cost will exceed average fixed cost by the level of average total cost D. Average total cost will exceed average variable cost by the level of average fixed cost

D. Average total cost will exceed average variable cost by the level of average fixed cost

(3) Economic profits are: A. Always larger than accounting profits B. The sum of accounting profits and implicit costs C. Equal to the difference between total revenues and implicit costs D. Equal to the difference between accounting profits and implicit costs

D. Equal to the difference between accounting profits and implicit costs

When total utility reaches a maximum, then marginal utility is: A. Increasing B. Decreasing C. At a minimum D. Equal to zero

D. Equal to zero