Microeconomics Final
A pure monopoly can sell 20 toys per day for $8 each. To sell 21 toys per day, the price must be cut to $7. The marginal revenue for the 21st toy is
-$13
When the price of a product is increased 10%, the quantity demanded decreased 15%. The price elasticity of demand for this product is
-1.5
The main difference between the short run and the long run is that
in the short run, some inputs are fixed and some are variable.
Oscar makes a purchase of an existing product (X) such that the marginal utility of the last unit he consumes is 10 utils and the price is $5. He also tries a new product (Y) and the marginal utility of the last unit he consumes is 8 utils and the price is $1. The equal marginal principle suggests that Oscar should
increase his consumption of product Y and decrease his consumption of product X.
you are the sales manager for a software company and have been informed that the absolute value of the price elasticity of demand for your most popular software is less than 1. To increase total revenues from that product, you should
increase the price of the software.
Which of the following is an example of a negative externality (additional social cost)?
Falling property values in a neighborhood where a disreputable nightclub is operating.
Fixed costs are those costs that are
independent of the amount of an output a firm produces in the short run.
As a consequence of the problem of scarcity
individuals have to make choices from among alternatives
A negative income elasticity of demand indicates that the product
is an inferior good.
Producer surplus:
is the difference between the minimum price producers are willing to accept and the higher equilibrium price.
The four factors of production (or types of resources) are
land, labor, capital, and entrepreneurial ability
Deadweight losses occur when the quantity of an output produced is
less than or greater than the competitive equilibrium quantity.
Mia wants to buy a book. The economic perspective suggests that Mia will buy the book if the
marginal benefit of the book is greater than or equal to its marginal cost
From an economic perspective, when consumers leave a fast food restaurant because the lines to be served are too long, they have concluded that the
marginal cost of waiting is greater than the marginal benefit of being served
After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the
marginal utility is positive for the fourth slice and negative for the fifth slice.
A consumer with a limited income will maximize utility when each good is purchased in amounts such that the
marginal utility per dollar spent on each of the final choices in a bundle is equal.
Which one of the following expressions best states the idea of opportunity cost?
"There is no such thing as free lunch"
An "increase in the quantity supplied" suggests a
movement up and to the right along the supply curve.
Assume that a 3% increase in income across the economy produces a 1% decrease in the quantity of fast food demanded. The income elasticity of demand for fast food is ______, and therefore fast food is _____
negative, an inferior good.
When producers do not have to pay the full cost of producing a product, they tend to
overproduce the product because of a negative externality.
The basic formula for the price elasticity of demand is
percentage change in quantity demanded / percentage change in price
The scarcity problem
persists because economic wants exceed available productive resources
We would expect the cross-price elasticity of demand between Pepsi and Coke to be
positive, indicating substitute goods.
Marginal utility can be
positive, negative, or equal to zero.
The market system does not produce public goods because
private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.
When the marginal benefit of an output exceeds the marginal cost
production of that output should be increased, in order to maximize economic surplus.
If the consumption of a product or service involves external benefits, then the government can improve efficiency in the market by
providing a subsidy to correct for an under-allocation of resources.
If product Y is an inferior good, a decrease in consumer incomes will
shift the demand curve for product Y to the right.
Assume that Clara purchases a combination of products Y and Z such that, after she is done spending her limited income, MUy/Py=25 and MUz/Pz=15. Based on the equal marginal principle, Clara
should have purchased more Y and less Z.
The difference between the actual price that a producer receives and the minimum acceptable price the producer is willing to accept is called the producer
surplus
Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?
An increase in supply
Which of the following is an example of a positive externality (additional social benefit)?
An increase in the value of land you own when a nearby development is completed.
Where there are spillover (or external) benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following except
taxing the sellers of the product.
According to the law of diminishing marginal returns
the additional product generated by additional units of an inout will eventually diminish.
Allocative efficiency occurs at the output where
the combined amounts of consumer surplus and producer surplus are maximized.
Macroeconomics approaches the study from the viewpoint of
the entire economy
Consumer surplus arises in a market because
the market price is below what some consumers are willing to pay for a product.
All else held constant, the law of demand suggests that as
the price of tablets decreases, the quantity of tablets demanded will increase.
If there are external benefits associated with the consumption of a good or service
the private demand curve will underestimate the true demand curve.
All else being equal, if the law of supply states that as the price of a good, service, or resource rises
the quantity supplied will increase, which explains the shape of the supply curve.
What are the two characteristics that differentiate private goods from public goods?
Rivalry and excludability.
Which is NOT a characteristic of a product with relatively inelastic demand?
There are a large number of good substitutes for the demand.
Which question is an example of a macroeconomic question?
What policies would be recommended for stimulating national economic growth?
Graphically, producer surplus is measured as the area
above the supply curve and below the actual price
When interpreting the Ed value as either elastic or inelastic, we look at the
absolute value of the Ed coefficient (dropping the negative sign).
When economists describe "a market," they mean
any place where, or mechanism by which buyers and sellers interact to trade goods, services, or resources.
In a situation where an externality occurs, the "third party" refers to those who
are not directly involved in the transaction or activity.
At any level of output
average total cost will exceed average variable cost by the amount of the average fixed cost.
Assume that you are the owner of a small bakery in your home town. Which of the following would be a variable cost of production in the short run?
baking supplies (flour, salt, etc.)
A public good
cannot be provided to one person without making it available to others as well.
Marginal product of labor refers to the
change in total product resulting from employing one more unit of labor.
When a competitive market maximizes economic surplus, it implies that the
combined consumer and producer surplus is maximized
Average fixed cost
declines continually as output increases.
A decrease in demand and an increase in supply will
decrease price and affect the equilibrium quantity in an indeterminate way.
An increase in the demand for corn is more than offset by an increase in its supply. As a result the equilibrium price will _____ and the equilibrium quantity will _____.
decrease, increase
The combination of zero pounds of corn and eighty pounds of green beans is
efficient
The price elasticity of demand of a linear demand curve is
elastic in high-price ranges and inelastic in low-price ranges.
Total revenue decreases as the price of a good increases, if the demand for the good is
elastic.
Economic profit is
equal to the difference between accounting profit and implicit costs.
To an economist, the economic costs associated with the use of resources include
explicit and implicit costs.
If the equilibrium wage for fast-food restaurants is $8 and the government enforces a minimum wage of $15
fast-food restaurants will hire fewer workers.
One major part of the opportunity costs of one's decision to go to college after high school graduation is the
full-time job that one could have gotten instead of going to college
Unlike a private good, a public good
has benefits available to all, including nonpayers.
A recurring theme in economics is that people
have unlimited economic wants but limited resources
In a free-market economy, a product that entails a positive externality (additional social benefit) will be
underproduced
The satisfaction or happiness one gets from consuming a good or service is called
utility.
Which of the following is a characteristic of a monopolistic competition?
Relatively easy entry
Which situation is consistent with the law of diminishing marginal utility?
The more pizza joe eats, the less he enjoys an additional slice.
The reason the marginal cost curve eventually increases as output increases for the typical firm is because of
diminishing marginal returns.
Price is taken to be a "given" by an individual firm selling in a perfectly competitive market because
each producer supplies a negligible fraction of total market.
The demand curve faced by a non-discriminating pure monopoly is
the same as the industry's demand curve.
Marginal cost can be defined as the change in...
total cost resulting from the production of an additional unit of output.
When diminishing marginal utility starts happening as a person consumes more and more of a given good
total utility will increase at a diminishing rate.
If a firm operating in a perfectly competitive industry is confronted with an equilibrium market price of $5, its marginal revenue
will also be $5.
Which of the following is the best synonym for "marginal" in economics?
Additional
Specialization allows a society to produce _______ goods
More
The price elasticity of demand for a popular sporting event is -2. If the price of a ticket to this event increases by 10%, the quantity of tickets demanded will decrease by
20%
For a pure monopoly to sell a quantity of 10 units, the price must be $8. Marginal revenue at this output level will be
<$8
Which of the following is an example if a public good?
A weather warning system.
Answer the next question on the basis of the following information. TFC = Total Fixed Cost MC = Marginal Cost TVC = Total Variable Cost Q = Quantity of Output P = Product Price Select the marginal cost.
Change in TVC / Change in Q
Which of the following is most likely to be an implicit cost for Company X?
Forgone rent from the building owned and used by Company X.
Which question is an illustration of a microeconomic question?
Is the volume of wine produced in 1 year dependent on the price of wine?
It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of the hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. Based on the preceding information, which of the following policies would be most appropriate for dealing with this problem?
Levy a tax on the producers of paper products and use the tax revenues to clean up the river.
The short-run supply curve of a perfectly competitive firm is based primarily on its
MC curve
Assume MUc and MUd represent the marginal utilities that Alyssa receives from the consumption of products C and D, respectively. Given a fixed budget, Alyssa could increase her total utility by spending more on C and less on D if initially
MUc/Pc>MUd/Pd
In which instances will total revenues decline?
Price increases and Ed equals -2.47
Which idea is inconsistent with perfect competition?
Product differentiation
Which of the following defines marginal utility?
The additional satisfaction or happiness received from the consumption of an additional unit of a good or service.
Which of the following is NOT an assumption of the decision-making process followed by consumers to maximize utility?
The consumer does not consider to prices of the products.
Which of the following would be an implicit cost for a firm?
The cost of wages foregone by the owner of the firm.
Which of the following most closely relates to the idea of opportunity costs?
Trade-offs
Which of the following statements about marginal utility is correct?
When marginal utility is positive, and increase in the quantity consumed will increase total utility.
Which of the following exemplifies a microeconomic question?
Will a new type of electric reader or tablet increase the number of buyers?
Which of the following would cause a rightward shift of the supply curve for cell-phone services?
a decrease in the wages of workers employed by cell-phone companies
Microeconomics is concerned with
a detailed examination of specific economic units that make up the economic system
One basic difference between "land" and "capital" is that land is
a gift of nature while capital is manufactured
A perfectly competitive firm trying to maximize profits in the short run will expand output
as long as marginal revenue is greater than marginal cost.
Monopolistic competitive firms are productively inefficient because production occurs where
average total cost is not at its lowest
If the short-run average variable cost of production for a firm is decreasing, then as it follows that
average variable cost must be greater than marginal cost.
An individual should specialize in the production of a good for which he/she has a
comparative advantage
The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called
consumer surplus
The decision-making process followed by consumers to maximize utility assumes that
consumers behave rationally, attempting to maximize their satisfaction.
A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 1,000 units is $2.50. The minimum possible average variable cost is $2. The market price of the product is $2.50. To maximize profits, the firm should
continue producing 1,000 units.
From an economic perspective, when a consumer decides to buy more life insurance, the customer has most likely concluded that the marginal
cost of more insurance coverage is less than the marginal benefit
Marginal cost can be defined as the change in
cost resulting from one more unit of prodiction
Variable costs are
costs that change with the amount of output a firm produces.
If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will
decrease
A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 500 units is $1.50. The minimum possible average variable cost is $1. The market price of the product is $1.25. To maximize profits, the firm should
decrease to production to less than 500 units.
If the demand for product X is inelastic, a 4% increase in the price of X will _____ the quantity demanded of X by _____ than 4%.
decrease, less
Assume that product Alph and product Beta are both priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta. The marginal utilities of the last unit of Alpha and Beta that she purchases are 40 utils and 20 utils, respectively. This indicates that
in order to maximize utility, Ellie should buy more Alpha and less Beta.
A firm sells in a purely competitive market. The marginal cost of the product at the current output level of 800 units is $3.50. The minimum possible average variable cost is $3. The market price of the product is $4. To maximize profits, the firm, should
increase production to more than 800 units.
Suppose that a pure monopoly calculates that at its present output level marginal revenue is $1 and marginal cost is $2. The monopoly could maximize profits or minimize losses by
increasing price and decreasing output
A monopolistically competitive firm's marginal revenue curve
is down-sloping and lies below the demand curve`
Sharon purchases two products, X and Y, with a given fixed budget. The marginal utility she receives from the last unit of X she consumes is 60 utils, and the marginal utility she receives from the last unit of Y she consumes is 30 utils. The price of X is $2 and the price of Y is $1. Based on the equal marginal principle, these data suggest that Sharon
is maximizing her total utility from the given fixed budget.
A perfectly competitive firm's output is currently such that its marginal revenue is $5 and marginal cost is $4. Assuming profit maximization, the firm should
leave price unchanged and increase output.
If an individual has a comparative advantage in the production of a good, this individual has the
lowest opportunity cost in the production of the good
The problems of inflation and unemployment are
major topics of macroeconomics
Many people believe that pure monopolies charge any price the want without affecting sales. Instead, the output level for a profit-maximizing pure monopoly occurs where
marginal revenue equals marginal cost
One defining characteristic of pure monopoly is that the
monopoly produces a product with no close substitutes.
A pure monopoly may generate economic profits because
of barriers to entry.
External benefits accruing to those
other than the ones who consumed the product.
At the profit-maximizing level of output for a pure monopoly
price is greater than marginal cost
Clara produces and sells tomatoes in a perfectly competitive market. This implies that Clara's marginal revenue generated from selling an additional unit of tomatoes is always equal to
price.
Assume that Alex would like to purchase a combination of product A and product B such that, after he is done spending his limited income, the MUa/Pa= 8 and MUb/Pb=4. To maximize utility without spending more money, Alex should
purchase more of product A and less of product B.
When a state government chooses to build more roads, the resources used are no longer available for public education programs. This dilemma illustrates the concept of
scarcity
The short-run supply curve for a perfectly competitive firm is the
segment of the MC curve lying at and above the AVC curve.
T-Shirt Enterprises is operating in a perfectly competitive market. It is producing 3,000 t-shirts and selling the, for $10 each. At this level of output, the average total cost is $10.50 and the average variable cost is $10.20. Based on the data, the firm should
shut down in the short run.
A positive externality or spillover benefit (additional social benefit) occurs when
the benefits associated with a product exceed those accruing to people who consume it.