Microeconomics Final Exams
In a pure planned economy, the decisions of what and how much to produce are made by:
the government only.
A competitive firms supply curve
is the marginal cost curve above average variable cost.
According to the Rawlsian criterion a society should
make decisions behind a veil of ignorance for equity reasons.
To internalize a negative externality, an appropriate public policy response would be to
tax the good.
The concavity of the production possibilities frontier is the result of
the law of increasing opportunity costs
Caveat Emptor means
Let the buyer beware
Assume Joe cleans Janes house weekly for $70. Jane would be willing to pay $90 weekly to have her house cleaned. Joes opportunity cost is $60. If Joe cleans Janes house the producer surplus is
$10
Suppose a consumer pays $4.00 before a tax and $6.00 after a tax and equilibrium quantity falls from 5000 before the tax to 4000 after the tax then the deadweight loss to consumers from the tax is
$1000
If the fixed cost of producing is $20 and the total cost of producing 10 uints is $140 then the average total cost of producing 10 uints is
$14
If the maximum the consumer is willing to pay is $5.00 and the minimum acceptable amount a seller is willing to accept is $3.00 then the bargaining amount is
$2.00
In spending all his income on Pepsi and pizza, Fred finds that the marginal utility of the last pizza is 4, the marginal utility of the last bottle of Pepsi is 2, and the price of pizza is $4.00. If Fred has maximized his utility then the price of Pepsi is:
$2.00
Assume Joe cleans Janes house weekly for $70. Jane would be willing to pay $90 weekly to have her house cleaned. Joes opportunity cost is $60. If Joe cleans Janes house the consumer surplus is
$20
If the fixed cost of producing is $20 and the total cost of producing 10 uints is $140 then the average variable cost of producing 10 uints is
$20
Suppose that the price of a new bicycle is $300. Natalie values a new bicycle at $400. It costs $100 for the seller to produce the new bicycle. What is the value of total surplus if Natalie buys a new bike?
$300
If a monopolist can sell 10 units at $100 and 11 units at $99 then the marginal revenue of the 10th unit is:
$89
Free trade can benefit society as a whole because it allows
- for a more efficient use of resources - for goods to be obtained at a lower opportunity cost - people to specialize in activities in which they have a comparative advantage all of these are correct
The baseball player Babe Ruth
- had an absolute advantage at pitching. - had an absolute advantage at hitting. - had a comparative advantage at pitching in Boston. - had a comparative advantage at hitting in New York. all of these answers are correct.
If a market is efficient, then
- the market allocates buyers to the sellers who can produce the good at lowest cost. - the quantity produced in the market maximizes the sum of consumer and producer surplus. - the market allocates output to the buyers that value it the most. all of the answers are correct
When new firms have an incentive to leave a competitive market, their exit
- will drive up market price - will drive up profits to existing firms in the market - will decrease the quantity of goods supplied in the market all of these are correct
If the price of a good increases from $10.00 to $20.00 and the quantity supplied increases from 5,000 to 10,000 then the elasticity of supply is
1.00
Suppose a tax of 1.00 dollars is imposed in the market and the price the consumer pay rises from 2.00 dollars before the tax to 2.60 dollars after the tax then the burden of the tax to producers is
40 cents
Suppose a tax of 1.00 dollars is imposed in the market and the price the consumer pay rises from 2.00 dollars before the tax to 2.70 dollars after the tax then the burden of the tax to consumers is
70 cents
Which of the following statements is true?
All costs are variable in the long run.
The demand for which of the following is likely to be the most price elastic?
Kellogg Corn Flakes
A repeated Prisoners Dilemma
Allow players a means of cooperation as the possibility of retaliation reduces the likelihood of cheating.
In the evolutionary norm prisoners dilemma game. The player who never cooperated (fights) is called a:
Ben
Compared to a single-price monopoly, the price charged by a competitive industry with the same costs
Compared to a single-price monopoly, the price charged by a competitive industry with the same costs
The diamond water paradox is resolved by noting
Consumer Surplus reflects total value while Price reflects marginal value
In the end the burden of a tax
Depends upon the elasticity of demand and supply
The idea that consumers derive less and less satisfaction from consuming additional items of a good is called
Diminishing marginal utility
Which of the following is FALSE, regarding economics as a science?
Economic theories represent irrefutable facts
In the video on minimum wage one of the reasons that increases in the minimum wage caused a small employment loss was because
Firms could pass on wage increases as prices increases
In evolutionary game theory, the player who plays an always share strategy is a
Frank
Which of the following statements about price and marginal cost in competitive and monopolized markets in the long run is true?
In competitive markets, price equals average cost while in monopolized markets, price exceeds average cost.
Suppose each of 30 neighbors on a street values street repairs at 1,000 dollars each. The cost of the street repair is 40,000 dollars. Which of the following statements is true?
It is not efficient to have the street repaired.
Mary is a tax accountant. She receives $100 per hour doing tax returns. She can type 10,000 characters per hour into spreadsheets. She can hire an assistant who types 2,500 characters per hour into spreadsheets. Which of the following statements is true?
Mary should hire the assistant as long as he pays the assistant less than $25 per hour.
two-part pricing
Nash equalibrium.
A prisoners dilemma is a game with all of the following characteristics except one. Which one is not present in a prisoners dilemma?
Players cooperate in arriving at their strategies.
Suppose both buyers and sellers of beanie babies expect their price to fall in the near future. What would we expect to happen to the equilibrium price and quantity in the market for beanie babies today?
Price will decrease; quantity is ambiguous.
Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice?
Price will increase; quantity is ambiguous.
Which of the following items is predicted to be the most income elastic?
Restaurant Meals
If Joe is less productive when chopping carrots compared to Sam then
Sam has an absolute advantage in chopping carrots
In the equation Qd=D(P:PINTE) the T stands for
Tastes and Preferences
In the equation Qs=S(P:PERTN) the T stands for
Technology
Suppose the price of corn syrup increases. Given that corn syrup is a major ingredient in the production of soft drinks, how will this affect the equilibrium price and quantity in the soda market?
The equilibrium price will increase and the equilibrium quantity will decrease.
Which of the following would be an implicit cost to the firm?
The firm's owner has given up $20,000 per year in foregone rent by using their own office space.
A welfare loss occurs in monopoly where:
The price is greater than the marginal cost
Adam Smiths invisible hand principle stresses
The tendency of the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society.
Which of the following statements is normative?
The unemployment rate should be lower.
Suppose the equilibrium price for apartments is $2000 per month and the government imposes rent controls (price ceiling) of $1000. Which of the following is unlikely to occur as a result of the rent controls?
There will be a surplus of housing.
Which of the following statements about trade is true?
Trade can potentially benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.
Which of the following is the fallacy in the fallacy of composition?
What is true for the part is necessarily also true for the whole.
A uncongested toll road is
a club good.
Which of the following grants the owner a legal monopoly on the commercial use of an original work of authorship for a period of time?
a copy right
When the price of the good increases, there is
a decrease in quantity demanded
Which of the following would an economist consider a capital resource?
a dump truck owned by Greenes Trucking
A person who regularly watches PBS television but fails to donate to their operations is known as
a free rider.
In a circular flow diagram if all goods and services are produced both through the interactions of households and firms as well as governmental choice then the economy is called
a mixed economy
When an individual buys a car in a congested urban area, it generates
a negative externality
If Mary earns $25000 more this year than last year and she buys more doughnuts this year, ceteris paribus. Then for Mary a doughnut is:
a normal good
A congested toll road is
a private good.
An uncongested freeway (no toll) is
a public good.
Which of the following will not shift a country's production possibilities frontier outward?
a reduction in unemployment
Since the supply of undeveloped land is relatively inelastic, a tax on undeveloped land would generate
a small deadweight loss and the burden of the tax would fall on the land owners
If the income elasticity of steak is found to be 5.6 then steak is a
a superior good.
Suppose a market is in equilibrium at $10.00 and the price floor is established above the equilibrium at $12.00. Which of the following will happen?
a surplus will develop
If a decrease in the price of pizza causes an increase in the demand for Pepsi then these goods are:
complement goods
Which of the following is a symptom of a price ceiling such as rent control?
all of these are symptoms of a price ceiling
If a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market with no externalities then the planner should
allow the market to seek equilibrium on its own.
If demand decreases and supply increases, price will
always decrease
If pinto beans are an inferior good, then
an increase in consumer income will decrease demand
An increase (rightward shift) in the demand for a good will tend to cause
an increase in the equilibrium price and quantity.
All of the following shift the supply of watches to the right except
an increase in the price of watches.
The idea that only the third degree price discrimination can not exist if the resale of proucts is esay is called
arbitrage
In the long run, the firm's total fixed costs:
are always equal to zero
Opportunity cost is defined
as the value of all alternatives not chosen
If in the short run marginal costs is above average total costs,
average total costs are rising.
Consumer surplus is the area
below the demand curve and above the price.
Total surplus is the area
below the demand curve and above the supply curve.
When trade takes place
both parties can be better off
Cookout charges one a lower price for Cookout tray that consists of a drink sandwich and two sides then the goods individually priced. This pricing strategy is called
bundling
When a tax distorts incentives to buyers and sellers in a market with no externalities so that fewer goods are produced and sold than otherwise, the tax has
caused a deadwight loss.
The Tragedy of the Commons is a parable that illustrates why
common resources are overconsumed.
When the price of X decreased, it caused an increase in the demand for good Y. This response indicates that X and Y are
complements
When a firm doubles its inputs and finds that its output has exactly doubled, this is known as:
constant returns to scale.
According to the principle of comparative advantage,
countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners
Considering a demand curve if the price of a good falls then marginal utility will
decrease
The burden of a tax falls more heavily on the households in a market when
demand is inelastic and supply is elastic.
A decrease in supply (shift to the left) will increase total revenue in that market if
demand is price inelastic.
If consumers think that there are few substitutes for a good, then
demand would tend to be price inelastic.
Which economic concept explains why a large drugstore chain produces at a higher per unit cost than an individually owned drugstore?
diseconomies to scale
In the short run a monopolists firms supply curve
does not exist.
If there are no implicit costs of production,
economic profit and accounting profit will be equal.
If an increase in the price of a product from $2.00 to $3.00 per unit leads to a decrease in quantity demanded from 80 to 20 units then the elasticity of demand is
elastic
A tax placed on a good that is elastic for consumers and inelastic to sellers will likely generate a tax burden that
falls more heavily on sellers.
Since people respond to incentives, we would expect that, if the average salary of accountants increases by 50% while the average salary of teachers decreases by 20%, then
fewer students will take degree courses in education and more will take accounting courses.
Disney World charges one price for all the rides you want to ride. This pricing strategy is called
gate pricing
You observe that the price of coffee has increased and the quantity has also increased. You predict that the demand for coffee
has increased with no change in the supply of coffee.
Which of the following is an assumption about a perfectly competitive firm?
homogeneous product
The cost as measured by the value of foregone resources such as time is a(n)
implicit cost
Consider a demand curve if the price of a good falls then consumer surplus will
increase
Considering a demand curve if the price of a good falls then total utility will
increase
Assuming beef and chicken are substitutes in consumption, an increase in the price of beef, other things equal will:
increase the demand for chicken
A demand curve slopes down because
increasing opportunity cost
Considering a demand curve if the price of a good falls then total expenditure will
may increase, decrease or stay the same
Productive efficiency occurs when the:
minimum of long run average total cost equals price.
In the 19th century, Russian peasants noticed that during cholera epidemics there were lots of doctors around; so in attempt to eliminate cholera, they killed all the doctors. This is an example of
mistaking association as causation
Which of the following is an example of a public good?
national defence
If a person can not be prevented from using a good, the good is said to be
non excludable.
If point A consists of unemployed workers then point A is:
on the interior of the PPF
The Stag Hunt games differs from the Prisoners Dilemma game because
only the Prisoners Dilemma game has an incentive to cheat
The ability-to-pay principle encompasses the concept that
people with high incomes should pay a larger percentage of their income in taxes than people with low incomes.
A tax of $1.00 per gallon on gas
places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive.
When diminishing marginal product sets in, marginal product is
positive and decreasing
Economics that deals with WHAT IS is termed
positive economics
One reason economist suggest that people left to their own devices will underutilize mask during the COVID pandemic is that wearing a masks exhibit a
positive externality
From a welfare prospective, if a good exhibits a positivee externality the market will
produce too little of the good
The difference between the amount a seller is paid for a good and the minimum acceptable amount is known as:
producer surplus.
The cost as measured by the stress and disutility of a decision
psyche costs
A good that is non rival and non exclusive is a
public good
According to the Pareto criterion a society should
reallocate resources as long as someone is better off and no one is worse off.
Trade-offs are required because wants are unlimited and resources are
scarce.
Economics is the study of
scarcity and choice
Third degree price discrimination refers to:
selling the same product to different consumers at different prices when there is no difference in cost.
First degree price discrimination refers to:
selling the same product to each consumer at their maximum willingness to pay when ther is no difference in cost.
A new technology that helps firms reduce production costs will cause a
shift to the right of the supply curve.
If the price in a market happens to be below equilibrium, there will be a BLANK in the market, and the price will tend to BLANK. Fill in the BLANKS
shortage, rise
If a campground wants to increase revenues it
should lower prices if the demand for camping is elastic
In the short run, when marginal product is negative the firm is in
stage 3 production
A fixed cost is a cost that is:
sunk, like a start up cost
Within the supply and demand model, a tax collected from the sellers, built into price, of a good shifts the
supply curve upward by the size of the tax per unit.
The idea that monopolies are better then competition in the very long run because of incentives to innovate is called:
the lean and mean theory of monopoly
Suppose a market is in equilibrium at $15.00 and the price floor is established below the equilibrium at $12.00. Which of the following will happen?
the market will remain in equilibrium
The most efficient pollution control system would ensure that
the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount.
The idea that taxes should be imposed to raise revenues but not change incentives is called
the tax neutrality principle
The idea that taxes should be imposed on the citizens who receive the benefits
the user pays principle
At any price above the equilibrium (market-clearing)
there is a surplus
If the price of a good is above the equilibrium price,
there is a surplus and the price will fall.
When there is a surplus in a market,
there is pressure down on price
A monopoly is able to continue to generate economic profits in the long run because
there is some barrier to entry to that market.
If total fixed cost at Q=100 is $2000 then
total fixed cost at Q=220 is $2000
Economic profit is
total revenues minus explicit and implicit costs
Many golf courses charge a membership fee before you can play golf for a greens fee. This pricing strategy is called
two-part pricing
When labor is the only variable factor in production then when the marginal product of labor is maximized then marginal cost is:
unable to tell from the information provided
The allocative inefficiency associated with monopoly is due to
underproduction of the good.
If an increase in the price of a good has no impact on the total revenue in that market, demand must be
unit price elastic.
If the cross-price elasticity between two goods is zero, the two goods are
unrelated
Which of the following is a variable cost in the short run?
wages paid to factory labour
All of the following occur when a tax is levied on a good, EXCEPT:
welfare loss decreases