Microeconomics: Final

Frequently, in the short run, the quantity supplied of a good is a. not very responsive to price changes. b. determined by psychological forces and other non-economic forces. c. impossible, or nearly impossible, to measure. d. determined by the quantity demanded of the good.

a: Not very responsive to price changes

Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax a. quadruples. b. rises by a factor of 8. c. also doubles. d. triples.

a: Quadruples

At what level of output will average variable cost equal average total cost? a. There is no level of output where this occurs, as long as fixed costs are positive. b. for all levels of output in which average variable cost is falling c. when marginal cost equals average variable cost d. when marginal cost equals average total cost

a: There is no level of output where this occurs, as long as the fixed cost is positive

Goods that are rival in consumption include both a. common resources and private goods. b. club goods and public goods. c. private goods and club goods. d. public goods and common resources.

a: common resources and private goods

If marginal cost exceeds marginal revenue, the firm a. may still be earning a positive accounting profit. b. is most likely to be at a profit-maximizing level of output. c. should increase the level of production to maximize its profit. d. should reduce its average fixed cost in order to lower its marginal cost.

a: may still be earning a positive accounting profit

Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the a. supply of bicycles will shift to the left. b. supply of bicycles will shift to the right. c. demand for bicycle assembly workers will increase. d. firm must increase output to maintain profit levels.

a: supply of bicycles will shift to the left

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about a. 0.75, and supply is elastic. b. 1.33, and supply is elastic. c. 1.33, and supply is inelastic. d. 0.75, and supply is inelastic.

b: 1.33 and supply is elastic

If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a a. 2 percent decrease in the quantity demanded. b. 50 percent decrease in the quantity demanded. c. 5 percent decrease in the quantity demanded. d. 0.5 percent decrease in the quantity demanded.

b: 50 percent increase

Economists make assumptions to a. mimic the methodologies employed by other scientists. b. focus their thinking on the essence of the problem at hand. c. minimize the number of experiments that yield no useful data. d. minimize the likelihood that some aspect of the problem at hand is being overlooked.

b: Focus their thinking on the essence of the problem at hand

The minimum points of the average variable cost and average total cost curves occur where the a. average variable cost and average total cost curves intersect. b. marginal cost curve intersects those curves. c. marginal cost curve lies below the average variable cost and average total cost curves. d. slope of total cost is the smallest.

b: Marginal cost curve intersects those curves

For a monopolist, a. marginal revenue equals marginal cost at the point where total revenue is maximized. b. marginal revenue is always less than the price of the good. c. average revenue is always greater than the price of the good. d. marginal cost is always greater than average total cost.

b: Marginal revenue is always less than the price of the good.

The quantity demanded of a good is the amount that buyers are a. able to purchase. b. willing and able to purchase. c. willing to purchase. d. willing, able, and need to purchase.

b: Willing and able to purchase

Ray buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ray's willingness to pay is a. $105,000. b. $13,000. c. $131,000. d. $118,000.

c: $131,000

If the equilibrium price rises from $200 to $350, what is the additional producer surplus to initial producers? a. $7,500 b. $3,750 c. $15,000 d. $30,000

c: 15,000

A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its total costs are $4,500. The marginal cost of producing the 101st unit of output is $300. What is the total cost of producing 101 units? a. $46.53 b. $5,300 c. $4,800 d. $800

c: 4,800

A free-rider problem exists for any good that is not a. rival in consumption. b. free. c. excludable. d. a private good.

c: Excludable

If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then a. its average revenue is greater than $8. b. its marginal revenue is less than $8. c. its total cost is less than $4,000. d. All of the above are correct.

c: Its total cost is less than 4,000

The competitive firm's short-run supply curve is that portion of the a. marginal cost curve that lies above average total cost. b. average total cost curve that lies above marginal cost. c. marginal cost curve that lies above average variable cost. d. average variable cost curve that lies above marginal cost.

c: Marginal cost curve that lies above average variable cost

Marginal revenue can become negative for . competitive firms but not for monopoly firms. b. both competitive and monopoly firms. c. monopoly firms but not for competitive firms. d. neither competitive nor monopoly firms.

c: Monopoly firms but not for competitive markets

Public schools, parks, libraries, and roads are paid for largely through tax revenue because a. if they were funded privately, too many of these goods would be produced. b. society finds them so valuable that citizens are happy to pay for their full cost. c. these goods create a free-rider problem. d. All of the above are correct.

c: These schools create a free rider problem

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then a. total cost exceeds total revenue. b. a one-unit decrease in output will increase the firm's profit. c. a one-unit increase in output will increase the firm's profit. d. total revenue exceeds total cost.

c: a one-unit increase in output will increase the firm's profit.

Suppose an increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, the demand for tires a. decreases, and the supply of tires increases. b. is unaffected, and the supply of tires decreases. c. is unaffected, and the supply of tires increases. d. None of the above is necessarily correct.

c: none of the above is necessarily correct

A vacation home in Malibu is a. rival in consumption and not excludable. b. not rival in consumption and excludable. c. rival in consumption and excludable. d. not rival in consumption and not excludable.

c: rival in consumption and excludable

If marginal cost equals average total cost then, a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. zero economic profits in the short run. d. negative economic profits and shut down.

c: zero economic profits in the short run

If the market price is $6.30, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. zero economic profits in the short run. d. negative economic profits and shut down.

c: zero profits in the short run

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is a. 0.45. b. 3.00. c. 0.33. d. 2.20.

d: 2.20

If the market price is $10, what is the firm's total revenue? a. $35 b. $30 c. $15 d. $50

d: 50

In a certain economy, toys and greeting cards are produced, and the economy currently operates on its production possibilities frontier. Which of the following events would allow the economy to produce more toys and more greeting cards, relative to the quantities of those goods that are being produced now? a. The economy experiences economic growth. b. There is a technological advance in the toy industry, but the greeting card industry experiences no such advance. c. There is a technological advance in the greeting card industry, but the toy industry experiences no such advance. d. All of the above are correct.

d: All of the above are correct

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic, a. buyers and sellers will each bear 50 percent of the burden of the tax. b. both equilibrium price and quantity will increase. c. sellers of the good will bear most of the burden of the tax. d. buyers of the good will bear most of the burden of the tax.

d: Buyers of the good will bear most of the burden of the tax

For a monopoly firm, which of the following equalities is always true? a. price = total revenue b. price = marginal revenue c. marginal revenue = marginal cost d. price = average revenue

d: Price equals average revenue

A streetlight is a a. private good. b. club good. c. common resource. d. public good.

d: Public good

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because a. social costs equal private costs at the private market solution. b. they internalize externalities. c. private costs exceed social costs at the private market solution. d. social costs exceed private costs at the private market solution.

d: social costs exceed private costs at the private market solution