Microeconomics Practice Exam

An increase in the wage rate has an income effect, which results in ____ hours worked, and a substitution effect, which results in ____ hours of work. a. fewer; more b. fewer; fewer c. no change in; fewer d. more; more

a.

Factors of production that cannot be increased or decreased in the production process are referred to as a. fixed inputs. b. variable inputs. c. diminished returns. d. increased returns

a.

The income effect refers to the change in consumption of a good in response to a change in a. its relative price. b. purchasing power. c. the consumer's income. d. the elasticity of demand.

b.

Whenever a producer is operating under conditions of diminishing returns, marginal cost will be a. decreasing. b. increasing. c. constant. d. Stable.

b.

When labor is the single variable input, we often observe diminishing returns to labor in the production process, which means that, as the amount of a. output increases, the amount of labor diminishes. b. labor increases, the amount of output falls. c. labor increases, the marginal product of labor falls. d. labor diminishes, the amount of output increases.

c.

In a competitive model, firms a. make differentiated products. b. sell to poorly informed customers. c. have control over prices. d. act as price takers.

d.

Which of the following always falls as output increases? a. total cost b. marginal cost c. average cost d. average fixed cost

d.