Microeconomics Final
In 2015 the minimum wage according to federal law was $7.25 per hour. Increasing the minimum wage to $8 per hour (approximately a 10% increase) will probably lead to:
- higher income for the working poor - an increase in teenage unemployment more teenagers dropping out of school - and preventing some unskilled workers from getting the on-the-job training they need
Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be
-3,875
The US and Brazil has following opportunity cost. Which of the following terms of trade will benefit both the US and Brazil? US : opportunity cost of a large jet = 1.3 small jetBrazil : opportunity cost of a large jet = 3 small jet
1 large jet = 2 small jet
Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross-price elasticity of demand is about
1.2 and X and Y are substitutes
If a 15% increase in price for a good results in a 20 percent decrease in quantity demanded, the price elasticity of demand is
1.33
Considering the scenario above, which of the following exchange ratios benefits both countries in trade?
10 Apple for 7 tomatoes
Which of the following terms of trade can both Texia and Urbania benefit from trade?
2.3 Food for 1 clothing
Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is
2.33
Carol Anne makes candles. If she charges $20 for each candle, her total revenue will be
500 is she sells 25 candles
The Three Amigo's company produced and sold 500 dog beds. The average cost of production per dog bed was $15. Each dog bed can be sold for a price of $65. The Three Amigo's total costs are
7,500
The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways?
A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost.
For which of the following individuals would the opportunity cost of going to college be highest?
A famous, highly paid actor who wants to take time away from show business to finish college and earn a degree
Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,
A shortage of treadmills will develop
Continue with the scenario above, which country has the comparative advantage in producing apples?
Australia
Given 10 hours, Australi and Brazil can produce tomatoes and apples as follows: Suppose that in Australia, it takes 10 hours to harvest 50 bushels of apples and 10 hours to harvest 25 bushels of tomatoes. Suppose a worker in Brazil can harvest 25 bushels of apples in 10 hours or 20 bushels of tomatoes in 10 hours. Which country has the absolute advantage in producing apples?
Australia
Which country has the absolute advantage in producing tomatoes?
Australia
What is the fundamental basis for trade among nations
Comparative advantage
Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's
Demand for cigarettes is perfectly inelastic
society is getting the most it can from its scarce resources
Efficiency
If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then
Iowa has a comparative advantage in the production of corn.
Which of the following is true about a monopolistically competitive firm?
It can earn an economic profit in the short run, but not the long run
If Korea is capable of producing either shoes or soccer balls or some combination of the two, then
Korea's opportunity cost of shoes is the inverse of its opportunity cost of soccer balls.
In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that
Moldova is a price taker
Which of the following statements is correct about competitive firms
Only for competitive firms does average revenue equal marginal revenue.
Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that
People face trade offs
The production possibilities frontier provides an illustration of the principle that
People face trade offs
A demand curve reflects each of the following except the
Quantity that each buyer will ultimately purchase
The overriding reason why households and societies face many decisions is that
Resources are scarce
What term refers to the idea that society has limited resources and therefore cannot produce all the goods and services people wish to have?
Scarcity
If Shawn can produce more donuts in one day than Sue can produce in one day, then
Shawn has an absolute advantage in the production of donuts.
If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as
T x Q
Considering the above situation, _______ has the comparative advantage in the production of clothing and ________ has the comparative advantage in the production of food.
Texia; Urbania
Consider the scenario: In one year, if Texia specializes in food, it can produce 1,000 units of food and 0 units of clothing this year. If it specializes in clothing, it can produce 500 units of clothing and 0 units of food. In our year, Urbania can produce either 500 units of food and 0 units of clothing or 200 units of clothing and 0 units of food. (Assume linear production possibility frontiers.) ________ has the absolute advantage in the production of clothing, and ________ has the absolute advantage in the production of food.
Texia; texia
You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3-off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost?
The amount you value the first movie + $3
Which of the following is a necessary characteristic of a monopoly?
The firm is the sole seller of its product
If a price ceiling is not binding, then
There will be no effect on the market price or quantity sold
T or F Taxes create market inefficiencies that can be measured as deadweight loss.
True
a price ceiling is
a legal maximum on the price at which a good can be sold
Which of the following would be most likely to have monopoly power
a local cable tv provider
Comparative advantage is an economy's ability to produce a particular good or service at _____________________ than its trading partner.
a lower opportunity cost
If the demand for a good falls when income falls, then the good Is called
a normal good
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
a one-unit decrease in output will increase the firms profit
When we move along a given demand curve,
all nonprice determinants of demand are held constant.
Which of the following would not be a result of a binding price ceiling on child care?
an increase in the quantity of child care supplied
The movement from point A to point B on the graph is called
an increase in the quantity supplied
The commercial jetliner industry consisting of Boeing and Airbus would best be described as
an oligopoly.
The fundamental source of monopoly power is
barriers to entry
On a graph, consumer surplus is represented by the area
below the demand curve and above the price
A shortage results when a
binding price ceiling is imposed in a market
A monopoly can earn positive profits because it
can maintain a price such that total revenues will exceed total costs.
Price discrimination
can maximize profits if the seller can prevent the resale of goods between customers.
For a firm, marginal revenue minus marginal cost is equal to
change in profit
The most obvious benefit of specialization and trade is that they allow us to
consume more goods than we otherwise would be able to consume
which of the following industries is most likely to exhibit the characteristic of free entry
dairy farming
An increase in the price of a good will
decrease in quantity demanded
Monopoly firms face
downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve.
A benefit to society of the patent and copyright laws is that those laws
encourage creative activity
The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that
equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.
A firm's opportunity costs of production are equal to its
explicit costs + implicit costs
Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the
flatter the demand curve will be
In the short run, a firm that produces and sells house paint can likely adjust
how many workers to hire
A difference between explicit and implicit costs is that
implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is
inelastic
in the long run
inputs that were fixed in the short run become variable
When a factory is operating in the short run,
it cannot adjust the quantity of fixed inputs
An economy's production of two goods is efficient if
it is impossible to produce more of one good without producing less of the other
For a firm to price discriminate,
it must have some market power
If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then
its average total cost is less than $10
A firm that shuts down temporarily has to pay
its fixed costs but not its variable costs
Economies of scale occur when
long-run average total costs fall as output increases
The minimum points of the average variable cost and average total cost curves occur where the
marginal cost curve intersects those curves
The analysis of competitive firms sheds light on the decisions that lie behind the
market supply curve
The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
maximizes the combined welfare of buyers and sellers
Goods with many close substitutes tend to have
more elastic demands
When profit-maximizing firms in competitive markets are earning profits,
new firms will enter the market
A competitive market is a market in which
no individual buyer or seller has any significant impact on the market price
Free entry means that
no legal barriers prevent a firm from entering an industry
Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
positive, and the good is a normal good
The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which
profit is maximized
When a tax is levied on a good, the buyers and sellers of the good share the burden,
regardless of how the tax is levied
The market supply curve
represents the sum of the quantities supplied by all the sellers at each price of the good
The law of supply states that, other things equal, when the price of a good
rises, the quantity supplied of the good rises
Resources are
scarce for households and scarce for economies.
Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should
sell the ticket because the marginal benefit exceeds the marginal cost
Rent controls cause
shortages of apartments which are larger in the long run than in the short run
The most likely explanation for economies of scale is
specialization of labor
When fixed costs are ignored because they are irrelevant to a business's production decision, they are called
sunk costs
The deadweight loss from a tax is likely to be smallest when
supply is inelastic and demand is inelastic
A tax on an imported good is called a
tariff
Producer surplus is
the amount a seller is paid for a good minus the seller's cost of providing it
If something happens to alter the quantity demanded at any given price, then
the demand curve shifts
if something happens to alter the quantity demanded at any given price, then
the demand curve shifts
Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,
the equilibrium quantity decreases, and the equilibrium price is unchanged.
A government-created monopoly arises when
the government gives a firm the exclusive right to sell some good or service
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
the nation is not using all available resources or is using inferior technology or both.
Taxes on labor may distort labor markets greatly if
the number of hours many part-time workers want to work is very sensitive to the wage rate
The bowed-outward shape of the production possibilities frontier can be explained by the fact that
the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.
The short-run supply curve for a firm in a perfectly competitive market is
the portion of its marginal cost curve that lies above its average variable cost.
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes.
Cross-price elasticity of demand measures how
the quantity demanded of one good changes in response to a change in the price of another good.
