Microeconomics Final Exam True/False
A firm's short-run average total cost curve is parallel to its short-run average variable cost curve
False
A tariff makes domestic consumers better off.
False
An explicit cost is a nonmonetary opportunity cost.
False
As output increases average variable cost becomes smaller and smaller
False
Being a price-taker, a perfectly competitive firm cannot receive a producer surplus in the short run.
False
Economists reason that it is optimal to choose a point where the marginal benefit is greater than the marginal cost.
False
Farmers can plant either corn or soybeans in their fields. An increase in the price of soybeans would cause the supply of soybeans to increase.
False
For a perfectly competitive firm, at profit maximization, total revenue is maximized.
False
If Blake can pick more cherries in one hour than Cody, then Blake has a comparative advantage in cherry picking.
False
If Joey Kobayashi experiences diminishing marginal utility from eating hot dogs then the marginal utility from the next hot dog Joey eats will be negative.
False
If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania cannot take place until Albanian workers become more productive.
False
If Paul decides to buy a $60 ticket to a Cirque du Soleil show rather than a $45 ticket for a Blue Man Group performance, we can conclude that the marginal utility per dollar spent on Cirque du Soleil is lower than the marginal utility per dollar spent on Blue Man Group.
False
If a firm's long-run average total curve shows that it can produce 5,000 DVDs at an average cost of $2.00 and 15,000 DVDs at an average cost of $1.50, this is evidence of diseconomies of scale.
False
If average total cost is falling marginal cost must also be falling.
False
If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded.
False
If the demand for a product is elastic, the quantity demanded changes by a smaller percentage than the percentage change in price.
False
If the demand for a steak is unit-elastic, then the percentage change in quantity demanded is 1 percent greater than the percentage change in price.
False
If the marginal utility Ida Mae receives from eating chicken wings is negative then her total utility from eating chicken wings must be negative as well.
False
If the marginal utility of apples is diminishing and is a positive amount, consuming one more apple will cause total utility to decrease.
False
If the price of pork rinds falls, the substitution effect due to the price change will cause a decrease in the quantity of pork rinds demanded.
False
If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities.
False
If, in a competitive market, marginal benefit is greater than marginal cost, the quantity sold is greater than the equilibrium quantity.
False
In general, if a product has few substitutes it will have an elastic demand.
False
In the long run, total cost = fixed cost + variable cost.
False
In the short run, a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.
False
Individuals who have never been the best at doing anything cannot have a comparative advantage in producing any product.
False
Issuing marketable emission allowance permits to polluting firms will result in those firms polluting more than is socially desirable.
False
It is not possible to have a comparative advantage in producing a good or service without having an absolute advantage.
False
Marginal cost will equal average total cost when marginal cost is at its lowest point.
False
Perfectly competitive industries tend to produce low-priced, low-technology products.
False
Productive efficiency is achieved when firms produce the goods and services that consumers value most.
False
Specializing in the production of a good or service in which one has a comparative advantage enables a country to produce a combination of goods that lies outside its own production possibilities frontier.
False
Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. The more elastic the supply curve, the greater the price increase.
False
The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems.
False
The absolute value of the price elasticity of demand for telescopes is 1.5. Therefore, telescopes can be classified as a luxury.
False
The basis for trade is absolute advantage, not comparative advantage.
False
The larger the share of a good in a consumer's budget, holding everything else constant, the more price inelastic is a consumer's demand.
False
The market demand curve in perfect competition is a horizontal line; the firm's demand curve is downwardsloping.
False
The result of a price increase for an inferior good is that both the substitution effect and the income effect cause the consumer to buy less of the good.
False
The social cost of a good or service is the cost borne by the producer.
False
The substitution effect of a price change refers to the shift of a demand curve when the price of a substitute good changes.
False
The supply curve of a perfectly competitive firm in the short run is the firm's average variable cost curve.
False
To maximize utility consumers should buy goods and services to the point where the marginal utility of each item consumed is equal.
False
Total utility is maximized in the consumption of two goods by equating the marginal utility for each good consumed.
False
When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalize the externality.
False
A quota is a numerical limit on the quantity of a good that can be imported.
True
A.C. Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality
True
Along a downward sloping, linear demand curve, total revenue is the greatest where demand is unitelastic.
True
An external benefit is created when you pursue a college education.
True
An externality is an example of a market failure.
True
Assume that the personal computer industry is perfectly competitive. The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.
True
Autarky is a situation in which a country does not trade with other countries.
True
During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide on the number of slices of pizza and cups of Coca-Cola he would consume. Peter explained "To maximize his utility this consumer must equate the marginal utility per dollar for pizza and Coca-Cola."
True
Each country as a whole is made better off as a result of international trade, but individuals within each country may be made worse off.
True
Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which the sum of consumer surplus and producer surplus is at a maximum.
True
Economic surplus is maximized in a competitive market when marginal benefit equals marginal cost.
True
For a perfectly competitive firm, at the profit-maximizing output average revenue equals marginal cost.
True
Gertrude Stork's Chocolate Shoppe normally employs 4 workers. When the Chocolate Shoppe hired a 5th worker the Shoppe's total output decreased. Therefore, the marginal product of the 5th worker is negative.
True
Holding everything else constant, a decrease in the price of GPS systems will result in an increase in the quantity of GPS systems demanded.
True
If a country produces only two goods, then it is not possible to have a comparative advantage in the production of both those goods.
True
If a perfectly competitive firm raises the price it charges to consumers, the most likely outcome is that the firm will not sell any output.
True
If at a price of $10, a vendor sells 5 units of a product and at a price of $8, 6 units are sold, then, using the midpoint formula, the demand for this good is inelastic.
True
If it costs Sinclair $300 to produce 3 suede jackets and $420 to produce 4 suede jackets, then $120 is the marginal cost of producing the 4th suede jacket.
True
If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then price exceeds average total cost.
True
If the demand for a product increases and the supply of the same product decreases, the equilibrium price will increase.
True
If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then the price elasticity of demand for teapots is greater than 1 in absolute value.
True
If the quantity supplied of walkie-talkies increases by 5 percent when prices increase by 12 percent, then the supply of walkie-talkies is inelastic.
True
If the slope of a demand curve is equal to -0.1 then we don't know whether the demand is elastic or inelastic.
True
In Singapore, after the purchase of a new car, a buyer must pay the government $5,000 as tax. The imposition of the tax on buyers will shift the demand curve to the left by $5,000 in a graph.
True
In a two-good, two country world, if one country has an absolute advantage in the production of both goods, it can still benefit by trading with the other country.
True
In general, a "big ticket item" such as a house or new car will tend to have a more elastic demand than a lower priced good.
True
In making decisions about what to consume, a person's goal is to allocate her limited income among all the products she wishes to buy so that she receives the highest total utility
True
In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes agree to voluntary export restraints.
True
In the short run, because of specialization and the division of labor, as more workers are hired output will first increase at an increasing rate, then output will increase at a decreasing rate.
True
In the short run, if average product is at its maximum, then average variable cost is at its minimum.
True
Jill believes that the price elasticity of demand for her economics textbook is relatively inelastic. She argues "I was told I had to purchase a book written by Hubbard and O'Brien as required by my instructor. If I wanted to buy a mystery novel I would have many authors to choose from. Therefore, the demand for mystery novels is more elastic than the demand for my textbook." Is Jill correct?
True
Most food products have low income- and price-elasticities of demand.
True
One of the main sources of comparative advantage is natural resources.
True
One reason a country does not specialize completely in production is that production of most goods involves increasing opportunity costs.
True
Opera Estate Girls' School is increasing its tuition. If the school believes that raising tuition will increase revenue, it is assuming that the demand for attending the school is perfectly elastic.
True
Protectionism is the use of quotas/tariffs to protect domestic firms from foreign competition.
True
Some workers have realized that economic and financial uncertainty have made the prospect of retiring more risky, and therefore decide not to retire early. By using all available information as they act to achieve their goals, these workers are exemplifying the economic idea that people are rational.
True
Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video. It must be true that the marginal utility per dollar spent on books exceeds that of video rentals.
True
Suppose a decrease in the supply of paper results in an increase in revenue. This indicates that the demand for paper is inelastic.
True
The LRATC shows the lowest cost at which a firm is able to produce a given level of output when no inputs are fixed.
True
The United States would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas.
True
The division of labor and specialization explain why the marginal product of labor rises as a firm hires its first units of labor.
True
The income effect of a price change results in a movement along the demand curve due to a change in purchasing power brought about by the price change.
True
The marginal cost curve has a U shape because initially, the marginal product of labor rises, then falls.
True
The substitution effect of a price change is the change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
True
When a firm experiences a positive technological change, the firm is able to produce more output using the same inputs, or the same output using fewer inputs.
True
When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even.
True
When negative externalities exist, the competitive market supply curve does not include all of the costs borne by members of society.
True
When products that create positive externalities are produced, at the market equilibrium output, the social benefit generated by consuming the product exceeds the private benefit.
True
When there is a positive externality, the social benefit received by consumers is greater than the private benefit.
True
Stan owns a software design business. He obtained a bank loan to buy computer equipment for his business. He pays $1,000 per month for interest on the loan. He has 10 employees, each of whom is paid $4,000 per month. Because his business has been successful, next month he will increase employee wages to $5,000. If the revenue from his business remains at its current level, Stan is considering an addition to his office. Are the following statements regarding Stan's business true or false? A) The payments Stan makes to his employees are variable costs and explicit costs. B) The monthly payment Stan makes for his bank loan is an implicit cost. C) The monthly payment Stan makes for his bank loan is a fixed cost. D) The time and effort Stan spends on his software design business is an implicit cost.
True False True True
