MicroEconomics Final MC
Price elasticity of demand measures the responsiveness of the change in: A) quantity demanded to a change in price. B) price to a change in quantity demanded. C) slope of the demand curve to a change in price. D) slope of the demand curve to a change in quantity demanded.
a
Total cost divided by the quantity of output produced is: A) average total cost. B) average fixed cost. C) average product. D) marginal cost.
a
Damage to the environment occurs because: A) most businesses just don't care about the environment. B) consumers want goods and services at the lowest prices, no matter what other costs may be involved. C) in the process of obtaining goods and services we enjoy, pollution occurs. D) pollution occurs naturally, with or without human activity.
c
Due to the existence of a large number of similar, but not identical, substitutes in most communities, the market for chiropractors is best considered: A) an oligopoly. B) perfect competition. C) monopolistic competition. D) a monopoly.
c
Economists know that a particular good can be classified as an inferior good if a(n) ________ in buyers' income causes a(n) ________ . A) increase; increase in demand B) increase; increase in quantity demanded C) increase; decrease in demand D) decrease; decrease in demand
c
If a firm produces 10 units of output and incurs $30 in average variable cost and $35 in average total cost, total fixed cost is: A) $3. B) $35. C) $50. D) $300.
c
If an activity generates external costs, decision makers generating the activity will: A) be faced with its full costs. B) be faced with no costs. C) not be faced with its full costs. D) be faced with excessive costs.
c
If people demand more of product A when the price of B falls, then A and B are: A) not related. B) substitutes. C) complements. D) inferior.
c
Oligopoly is a market structure characterized by: A) independence in decision making. B) a horizontal demand curve. C) a small number of interdependent firms. D) relatively easy entry and exit.
c
Price controls: A) always increase economic efficiency. B) always lead to more equitable results. C) can result in inequitable outcomes. D) are all of the above.
c
Producer surplus: A) is the difference between what buyers are willing to pay for a good and the cost of producing that good. B) is measured as the area beneath the supply curve and above the market price. C) measures the gains to producers from participating in a market. D) is all of the above.
c
The marginal external cost of a good or activity equals: A) the amount by which the marginal social benefit curve is higher than the demand curve. B) the amount by which the marginal social cost curve is lower than the supply curve. C) the amount by which the marginal social cost curve is higher than the supply curve. D) both A and C.
c
The marginal revenue received by a firm in a perfectly competitive market: A) is greater than the market price. B) is less than the market price. C) is equal to its average revenue. D) increases with the quantity of output sold.
c
The percent change in quantity demanded divided by the percent change in income, all other things unchanged, is: A) price elasticity of demand. B) quantity elasticity of demand. C) income elasticity of demand. D) cross-price elasticity of demand.
c
The production possibilities curve illustrates that: A) the economy will automatically end up at full employment. B) an economy's productive capacity increases proportionally with its population. C) if all resources of an economy are being used, more of one good can be produced only if less of another good is produced. D) economic production possibilities have no limit.
c
In perfect competition, a change in fixed cost: A) will have no effect on price in the short run. B) will have no effect on output in the short run. C) will induce entry or exit in the long run so that price will change enough to leave firms earning zero profits. D) is described by all of the above.
d
The curve that shows the additional cost of each additional unit of output is called the: A) average cost curve. B) total cost curve. C) marginal product curve. D) marginal cost curve.
d
There are benefits resulting indirectly from pollution, because: A) we obtain goods and services we enjoy even though, in the process, we create pollution. B) firms pollute the environment only if it allows them to provide people with goods and services they desire at a higher cost. C) businesses and consumers receive a perverse satisfaction from polluting. D) it can often be beneficial to wildlife.
a
A decrease in supply means: A) a shift to the left of the entire supply curve. B) moving downward (to the left) along the supply curve with lower prices. C) less will be demanded at every price. D) more will be supplied at every price.
a
A monopoly is a market characterized by a: A) product with no close substitutes. B) single buyer and several sellers. C) large number of small firms. D) small number of large firms.
a
An increase in demand, with no change in supply, will lead to ________ in equilibrium quantity and ________ in equilibrium price. A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease
a
If external costs exist, the competitive free market: A) allocates resources inefficiently. B) allocates resources efficiently. C) automatically corrects an overallocation of resources. D) automatically corrects an underallocation of resources.
a
If marginal cost is greater than average total cost, then: A) average total cost is increasing. B) average total cost is decreasing. C) average total cost is unchanged. D) marginal cost is decreasing.
a
If price is greater than average variable cost and less than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: A) produce at an economic loss. B) produce at an economic profit. C) shut down production. D) produce more than the profit-maximizing quantity.
a
If the government feels that the price in the market is too high for the _______, it can impose a _____. A) consumers; price ceiling B) consumers; price floor C) producers; price ceiling D) producers; price floor
a
Price discrimination leads to a _______ price in the market with a _______ demand. A) higher; less elastic B) higher; more elastic C) higher; perfectly elastic D) lower; less elastic
a
Suppose at a price of $10 the quantity demanded is 100. When price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between the prices of $10 and $8 using the midpoint method is approximately: A) 1.17. B) 1.50. C) 0.85. D) 1.00.
a
Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the typical firm is likely to begin: A) earning an economic profit. B) incurring an economic loss. C) experiencing no change in its economic profit. D) experiencing neither an economic profit nor an economic loss.
a
The amount by which an additional unit of a good or service increases a consumer's total utility, all other things unchanged, is: A) marginal utility. B) maximum utility. C) average utility. D) required utility.
a
The assumptions of perfect competition imply that: A) individuals in the market accept the market price as given. B) individuals can influence the market price. C) the price will be a fair price. D) the price will be low.
a
The demand for agricultural output is price inelastic. This means that if farmers, taken collectively, have a bumper crop, they will experience: A) lower prices, greater quantities sold, and lower incomes. B) higher prices, greater quantities sold, and higher incomes. C) lower prices, lower quantities sold, and lower incomes. D) higher prices, higher quantities sold, and higher incomes.
a
The price elasticity of a good will tend to be greater: A) the longer the relevant time period. B) the fewer the number of substitute goods available. C) if it is a staple or necessity with few substitutes. D) if all of the above exist.
a
The proposition that if bargaining is costless, then the market can achieve an efficient outcome, is the: A) Coase theorem. B) property rights paradigm. C) market rights theorem. D) efficient environment paradigm.
a
The utility of a good is determined by how much _______ a particular consumer obtains from it. A) satisfaction B) usefulness C) cost D) need fulfillment
a
A demand curve that is downward sloping will ensure that: A) P = MR. B) P > MR. C) P < MR. D) P = MC.
b
(Figure: Model of a Competitive Market) If there are external costs: A) resources will be underallocated to the production of the good. B) resources will be overallocated to the production of the good. C) resources will be allocated efficiently to the production of the good. D) the price at P will be higher than if there were no external costs.
b
A familiar example of a negative externality is loud music on a college campus. In principle, it should be possible to internalize this externality by permitting students to negotiate about rights to play music during particular time periods. The most likely reason that this does not happen is: A) that most students are unfamiliar with the Coase theorem. B) that the transactions costs associated with identifying and establishing communication students would be high. C) that any agreements arising from such negotiations could not be enforced. D) because of all of the above.
b
A perfectly competitive firm's supply curve is the: A) entire MC curve. B) rising part of MC curve beginning at the shutdown point. C) rising part of MC curve beginning at the point at which the firm starts earning economic profit. D) MC curve below the shutdown point.
b
An increase in demand and a decrease in supply, will lead to a(n) ________ in equilibrium quantity and a(n) ________ in equilibrium price. A) decrease; decrease B) indeterminate change; increase C) indeterminate change; decrease D) increase; indeterminate change
b
Average total cost is: A) the change in cost divided by the change in output. B) total cost divided by output. C) the change in output divided by the change in costs. D) total cost times output.
b
Diminishing marginal returns occur when: A) each additional unit of a variable factor adds more to total output than the previous unit. B) an additional variable factor adds less to total output than the previous unit. C) the marginal product of a variable factor is increasing, but at a decreasing rate. D) all of the above are true.
b
Given that chicken and beef are substitute goods, if the price of chicken decreases substantially, there would be: A) an increase in the demand for beef. B) a decrease in the demand for beef. C) a decrease in the quantity of beef demanded. D) no change in the demand for beef.
b
If a good has a price inelastic demand, then which of the following is not likely to be characteristic of this good? A) The good is a necessity and is relatively unimportant in the household budget. B) There are many substitutes for the good. C) Consumers spend a small percentage of their income on the good. D) Consumers do not have much time to adjust to market changes.
b
If a good produces a positive externality and the government does not correct it, the equilibrium market quantity is ____ than the socially optimal quantity and the equilibrium market price is ____ than the social optimal price. A) higher; higher B) lower; lower C) lower; higher D) higher; lower
b
If price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: A) produce at a loss. B) produce at a profit. C) shut down production. D) produce more than the profit-maximizing quantity.
b
If the price elasticity of supply is less than 1, then supply is: A) price elastic. B) price inelastic. C) unit-price elastic. D) very responsive to price changes.
b
If the price of a commodity increases, you would expect the: A) supply to increase. B) quantity supplied to increase. C) quantity supplied to decrease. D) supply curve to shift to the right.
b
If the price of chocolate-covered peanuts decreases from $1.10 to $0.90 and the quantity demanded increases from 190 bags to 210 bags, this indicates that, if other things are unchanged, the price elasticity of demand using the midpoint method is: A) 0. B) 0.5. C) 1. D) 2.
b
In the short run, a perfectly competitive firm produces output and earns zero economic profit if: A) P > ATC. B) P = ATC. C) P < AVC. D) AVC > P > ATC.
b
It is certain that the equilibrium price will fall when: A) the supply curve and the demand curve both shift to the right. B) the supply curve shifts to the right and the demand curve shifts to the left. C) supply and demand both increase. D) supply decreases and demand stays the same.
b
Marginal cost is the change in: A) total cost resulting from a 1-unit change in a variable input. B) total cost resulting from a 1-unit change in output. C) total cost resulting from a 1-unit change in average cost. D) average cost resulting from a 1-unit change in output.
b
Rent controls set a price ceiling below the equilibrium price and therefore: A) quantity supplied exceeds the quantity demanded. B) quantity demanded exceeds the quantity supplied. C) a surplus of rental units will result. D) poor people will obviously be helped.
b
Supply curves tend to be more ________ the greater the time period facing the producer. A) price inelastic B) price elastic C) steeply sloped D) inflexible
b
The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5 percent in a period, how will that affect demand for eggs in that period, all other things unchanged? A) Demand will increase by more than 5.7 percent. B) Demand will increase by about 2.9 percent. C) Demand will decrease by more than 5.7 percent. D) Demand will decrease.
b
The law of demand is illustrated when: A) an increase in tuition encourages more students to enroll in college because the quality of education has risen. B) an increase in the purchases of personal computers results from lower prices. C) higher oil prices causes oil companies to drill for new sources of oil. D) higher income causes more people to adopt golf as a sport.
b
The principle of diminishing marginal utility: A) refers to the tendency of total utility to increase until an individual's budget is no longer constrained. B) refers to the tendency of marginal utility to decline beyond some level of consumption during a period. C) indicates that, if a good is inferior, less of it will be purchased when income falls during a period. D) assumes all goods are normal.
b
The shutdown price is: A) the price at which economic profit is zero. B) the minimum level of AVC. C) the intersection of the MC and ATC curves. D) the minimum level of AFC.
b
When a public transit system (such as a subway or bus line) raises its fares, it may experience an increase in total revenue. This suggests that demand is: A) unstable. B) price inelastic. C) price elastic. D) unit-price elastic.
b
When the price of gas goes up and the demand for tires goes down, this means tires and gas are: A) substitutes. B) complements. C) both expensive. D) both inexpensive.
b
Which of the following is true? A) Profit per unit is price minus AVC. B) Total economic profit is per-unit profit times quantity. C) If price is less than ATC, the firm will shut down in the short run. D) If price is less than marginal cost, the perfectly competitive firm should raise the price and increase output.
b
A curve which shows the quantities of output that can be obtained from different quantities of a variable input, assuming other inputs are fixed, is called the _______ curve. A) total input B) marginal input C) total product D) average total quantity
c
A decrease in supply, with no change in demand, will lead to ________ in equilibrium quantity and ________ in equilibrium price. A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease
c
An increase in supply of a good is caused by: A) resource prices rising. B) a fall in the price of the good. C) an increase in the number of sellers. D) expectations of future price increases.
c
An industry characterized by many firms, producing similar but differentiated products, in a market with easy entry and exit is called: A) perfect competition. B) monopoly. C) monopolistic competition. D) oligopoly.
c
Assume that Brazil gives up 3 automobiles for each ton of coffee it produces, while Peru gives up 7 automobiles for each ton of coffee it produces. A) Brazil has a comparative advantage in automobile production and should specialize in coffee. B) Brazil has a comparative advantage in coffee production and should specialize in the production of automobiles. C) Brazil has a comparative advantage in coffee production and should specialize in coffee production. D) Brazil has a comparative advantage in automobile production and should specialize in automobile production.
c
Average variable cost is the ratio of: A) total cost to the marginal cost. B) total cost to the amount of variable input. C) variable cost to the quantity of output. D) marginal cost to the quantity of output.
c
The market of apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price ceiling in the market at a price of $0.40 per pound, then: A) quantity demanded will decrease. B) quantity supplied will increase. C) there will be a shortage of the good. D) the price ceiling will not affect the market price or output.
c
The short run is defined as a: A) period of time less than 1 year. B) period of time less than 6 months. C) planning period in which some inputs are considered to be fixed in quantity. D) time period in which some inputs are fixed, but it cannot exceed 1 year.
c
Which of the following is usually associated with a positive externality? A) smoking cigarettes B) purchasing a new CD C) innovation in the semiconductor industry D) all of the above
c
A decrease in demand, with no change in supply, will lead to ________ in equilibrium quantity and ________ in equilibrium price. A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease
d
A linear demand curve: A) has a constant price elasticity of demand. B) has price elasticity of demand equal to one. C) has price elasticity of demand that is positive. D) can have both elastic and inelastic price elasticity of demand.
d
An economy is said to have a comparative advantage in the production of one good if it: A) can produce more of all goods than another economy. B) can produce less of all goods than another economy. C) has the highest opportunity cost for producing a particular good. D) has the lowest opportunity cost for producing a particular good.
d
Black markets may develop with price controls because: A) price controls create inefficiency. B) quantity demanded does not equal quantity supplied at the mandated price. C) individuals can profit by illegal exchanges. D) of all of the above.
d
Compared to perfect competition: A) monopoly produces less at a higher price. B) monopoly produces where MR = MC, and a perfectly competitively firm produces where P = MC. C) monopoly may have economic profits in the long run, but in perfect competition in the long run economic profits are zero. D) all of the above are true.
d
Consumer surplus: A) is the difference between what buyers are willing to pay for a good and what they actually pay. B) is measured as the area beneath the demand curve and above the market price. C) measures the gains to consumers from participating in a market. D) is all of the above.
d
Expenses associated with factors of production are called: A) implicit costs. B) opportunity costs. C) explicit costs. D) all of the above.
d
If the opportunity cost of manufacturing machinery is lower in the United States than in Britain and the opportunity cost of manufacturing sweaters is higher in the United States than in Britain, then the United States will: A) export both sweaters and machinery to Britain. B) import both sweaters and machinery from Britain. C) export sweaters to Britain and import machinery from Britain. D) import sweaters from Britain and export machinery to Britain.
d
In perfect competition: A) a firm's total revenue is found by multiplying market price by the firm's quantity of output. B) the firm's total revenue curve is a linear, upward-sloping line. C) at any price, the greater the quantity sold, the greater is a firm's total revenue. D) all of the above are true.
d
In the long run: A) all inputs are fixed. B) inputs are neither variable nor fixed. C) at least one input is variable and one input is fixed. D) all inputs are variable.
d
The costs economists use in the concept of economic profit are: A) accounting costs. B) strictly dollar costs, not opportunity costs. C) opportunity costs, or the value of the best opportunity forgone. D) both A and C.
d
The demand curve facing a monopolist is: A) horizontal, the same as that facing a perfectly competitive firm. B) downward sloping, the same as that facing a perfectly competitive firm. C) upward sloping, the same as that facing a perfectly competitive firm. D) downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.
d
The demand curve for videos has shifted to the right. What could have caused it? A) a fall in the price of videos B) an increase in the price of videos C) an increase in the supply of videos D) an increase in the income of buyers
d
The income elasticity of demand of a normal good is: A) between 1 and 0. B) less than 0. C) equal to 0. D) greater than 0.
d
The perfectly competitive model assumes all of the following except: A) a great number of buyers. B) easy entry into and easy exit from the market. C) complete information on the part of buyers and sellers. D) that firms attempt to maximize their total revenue.
d
When a perfectly competitive firm is in long-run equilibrium, the firm is: A) producing at maximum average total cost. B) producing at maximum average variable cost. C) producing at minimum marginal cost. D) producing at minimum long-run average total cost.
d
When a perfectly competitive industry is in long-run equilibrium, its firms are: A) earning more than zero economic profits. B) combining their variable and fixed resources inefficiently. C) not in short-run equilibrium. D) allocating all their resources efficiently.
d
Whenever human activity generates a sufficient concentration of a substance in the environment to cause harm to people, it is called: A) a free good. B) an external shock. C) a result of human greed. D) pollution.
d
