Econ151 Exam Questions

Suppose the price of a cell phone service increases from 57.60 to 62.40 per month and as a result the number of subscribers decreased from 318000 to 282000. Along this portion of the demand curve, price elasticity of demand is equal to:

1.5 (% change in Q demand / % Change in Price)

If a firm produces 100000 units a year and sells them for $5 each (TR = 500000). The explicit costs of production are $350000 and implicit are $100000, what is the accounting profit?

$150000 (minus explicit), and an economic profit of $50000 (minus explicit/implicit)

If price elasticity of demand coefficient is equal to 1.25 then demand is:

Elastic

The maximization of profit tends to be the driving force in the economic decision making of:

Entrepreneurs

If demand is elastic, what will happen to total consumer expenditures as a result of a price increase?

Expenditures will decrease.

A change in supply means that there is a movement along an existing supply curve. (T/F)

FALSE

A monopolist charges highest price it can get.

FALSE

If the market price of resource A decreases, firms will tend to employ smaller quantities of resource A. (T/F)

FALSE

Microeconomics is concerned with the performance of the economy as a whole or its major aggregates.

FALSE

Pure monopoly guarantees economic profits.

FALSE

The demand curves for an individual firm in a purely competitive industry are perfectly inelastic.

FALSE

The monopolist determines the profit maximizing output by producing that output at which marginal cost = marginal revenue and sets the product price equal to marginal cost and marginal revenue at that output

FALSE

There are significant obstacles to entry in a purely competitive industry.

FALSE

While sleeping in on a work or school day has an opportunity cost, sleeping late on Saturday or Sunday does not. (T/F)

FALSE

Under purely competitive conditions, the product price charged by the firm increases as output increases.

FALSE (as output decreases!)

Suppose the price of gasoline increased from $3.50 to $10 a galloon. The fact that some motorists continue to buy some gasoline at the high price is proof that gasoline is an example of a product that is an exception to the law of demand. (T/F)

FALSE (ex. of inelastic demand)

An increase in demand will cause an increase in market equilibrium price and a decrease in equilibrium quantity. (T/F)

False

An increase in demand will cause an increase in market equilibrium price and decrease in equilibrium quantity(T/F)

False

An increase in the price of gasoline will cause a decrease in the demand for bicycles. (T/F)

False

Demand tends to be inelastic at higher prices and elastic at lower prices along a down-sloping demand linear demand curve

False

Efforts by the government to establish price supports above market equilibrium prices tend to promote most efficient use of scarce resources. (T/F)

False

Efforts by the government to set interest rates on loans before market equilibrium tend to make more funds available to lower income customers than would occur if market equilibrium interest were in effect. (T/F)

False

IF the price of a product increase from $5 to $6 and the quantity demanded decreases from 45 to 25, then according to TR test, product is price inelastic in this price range.

False

If two goods are complementary, an increase in the price of one will tend to increase the demand for the other. (T/F)

False

Macroeconomics analysis is concerned with economic activity of specific firms or markets. (T/F)

False

Suppose Henrietta Hen received $20 for her birthday. If she bought a new CD, the CD would have 0 opportunity cost because money was a gift. (T/F)

False

The pursuit of economic self-interest (utility maximization) is the same thing as selfishness or greediness (T/F)

False

The resources employed by a firm are all variable in the long run and all fixed in the short run (T/F)

False

Which of the following will cause a decrease in market equilibrium price and increase in equilibrium quantity? a. increase in demand b. decrease in supply c. increase in supply d. decrease in demand

Increase in supply

If two goods are substitutes for each other, an increase in the price one will necessarily:

Increase the demand for the other (Q demanded for good only affected by change in price of good)

Microeconomics deals mostly with:

Individual product markets and participants in those markets.

To determine the most profitable level of output the firm should look to its:

MC Curve

The demand schedule or curve confronted by the individual purely competitive firm is

PERFECTLY ELASTIC

A purely competitive firm's marginal revenue (MR) curve is

PERFECTLY ELASTIC AT MARKET DETERMINED PRICE

The idea in economics that "there is no such thing as a free lunch" means that"

Scare resources have alternative uses or opportunity costs.

If technology develops the PPC will:

Shift outward and upward (including vertical and horizontal intercepts)

A purely competitive firm is a price taker but a monopolist is a price maker.

TRUE

A purely competitive firm that wishes to produce and not close down will maximize profits or minimizes losses at the output at which marginal cost equals marginal revenue.

TRUE

A surplus indicates that the quantity demanded is less than the quantity supplied at that price.

TRUE

An increase in income will tend to increase the demand for a good. (T/F)

TRUE

An increase in the price of gasoline will cause an increase in demand for airline travel.

TRUE

An increase in the price of laser printers will cause a decrease in demand for laser toner cartridges. (T/F)

TRUE

An increase in the resource price will tend to decrease supply. (T/F)

TRUE

Imperfectly competitive markets are defined as all markets except those that are purely competitive.

TRUE

In a pure monopoly, there are strong barriers to entry.

TRUE

In a purely competitive industry individual firms do not have control over the price of their product.

TRUE

In the long run in pure competition, economic profits will attract new firms to enter an industry while economic losses will cause existing firms to leave an industry.

TRUE

The conflict between the unlimited economic wants of individuals or societies and limited economic resources of individuals or societies give rise to the ECONOMIZING PROBLEM.

TRUE

The existence of economic profits in an industry will attract new firms to enter an industry.

TRUE

The monopolist can increase the sales of its product if it charges a lower price

TRUE

The opportunity cost of producing a good tends to increase as more of it is produced because because resources less suitable to its production must be employed

TRUE

The opportunity cost of producing more consumer goods is the other goods and services the economy is unable to produce because it has decided to produce these additional goods.

TRUE

The pure monopolist produces a product for which there are no close substitutes.

TRUE

The purely competitive firm can maximize its economic profits (or minimize its loss) only by adjusting its output.

TRUE

When two products are substitute goods, the price of one and the demand for the other will tend to move in the same direction. (T/F)

TRUE

A decrease in the price of movie theater admissions will cause an increase in the demand for gasoline. (T/F)

TRUE (need gasoline for transportation)

A purely competitive will produce in the short run the output at which marginal cost and marginal revenue are equal provided that the price of the product Is greater than its AVC of production.

TRUE.

As a result of an above average amount of rain, this year's peach harvest is large. Consequently, price of peaches decreases from $30 per bushel. As a result of this price decrease people purchase fewer grapes, oranges and pears and buy more peaches. This is an example of:

The substitution effect causing a downward sloping demand curve for peaches.

At present output a monopolist determined that its MC is $18 and its MR is $21. The monopolist will maximize profits or minimize losses by

DECREASING PRICE AND INCREASING OUTPUT

The demand curve for the pure monopoly is

DOWNWARD SLOPING

Assume the price of a good starts out below equilibrium. As price moves towards equilibrium, the quantity demanded will _____ and quantity supplied will _______

Decrease / Increase

Suppose there is a decrease in demand and increase in supply. This will cause a ____ in market price and a _____ in market equilibrium quanitity

Decrease / Unknown change

If price elasticity is greater than 1, in order to increase total revenue you should:

Decrease the price of pizza

The analysis of monopoly indicates that the monopolist

WILL SEEK TO MAXIMIZE TOTAL PROFITS

Which of the following will result in the GREATEST increase in market price? a. decrease in supply, decrease in demand d. increase in supply, increase demand c. decrease in supply, increase in demand d. increase in supply, decrease in demand

c. increase in demand, decrease in supply

Which of the following is true concerning the construction of society's PPC? a. it assumes the prices of two goods are equal b. it assumes resources are scarce c. it assumes people prefer one of the good more than the other d. all of the above

b. it assumes resources are scarce

Henry Hen is considering buying a new smart phone. He could get an iPhone 4 for $99 or 5 for $299. Which ECONOMIC PRINCIPLE is applicable? a. every choice is a tradeoff b. the cost of something is the value to you of what you must do without. c. incentives influence our behavior and choices d. decision making takes place at margin. e. all of the above

e. all of the above

In which cases below is the opportunity cost of missing an economics class lowest? a. day before break b. Friday c. religious holiday d. hospital e. the opportunity of missing an economics class is the same in all of the above instances.

e. the opportunity of missing an economics class is the same in all of the above instances.

A perfectly elastic demand curve

has elasticity coefficient of infinity and is horizontal

Price controls on gasoline during 1970s caused the effective price of gasoline to be:

higher than market equilibrium price after OPEC reduced supply.

Because resources are not equally efficient toward the production of every good, the PPC

is bowed outward.

Tools, machinery, or equipment used to produce other goods would be an example of

capital goods

When the market supply is highly inelastic, and increase in demand will

cause a small increase in equilibrium quantity and a large increase in price

Which of the following would cause a decrease in the demand for beer?

significantly higher fines and jail time for drunk driving and underage drinking and driving convictions (PRICE DOES NOT AFFECT TOTAL DEMAND ONLY Q DEMANDED)

*If the short run AVC of production for a firm are falling, then this indicates that:

Marginal costs are below AVC

Which would be defining characteristics of pure monopoly?

NO CLOSE SUBSTITUTES AND THERE IS ONE SELLER.

Why does the short-run MC curve eventually increase for the typical firm:

The law of diminishing (marginal) returns

Holding technology and input prices constant, as market output increases, the opportunity cost of producing the extra units becomes greater and greater. This explains why the...

The market supply curve is upward sloping.

A basic economic argument in favor of the market system is that it promotes and efficient use of resources(T/F)

True

A decrease in the price of inkjet printers will cause a decrease in demand for laser printers(T/F)

True

A market is any arrangement that brings together buyers and sellers of particular good or service. (T/F)

True

An increase in the price of gasoline will cause a decrease in the demand for motel rooms in beach towns(T/F)

True

Economic efficiency requires that a given output of a good or service be produced in the least costly way. (T/F)

True

Economics is the social science that studies how individuals, institutions, and societies make choices under conditions of scarcity. (T/F)

True

If a firm increases all its inputs by 20% and output by 30% the firms is experiencing economies of scale.

True

If consumer tastes or preference for a product decrease, the demand for the product will tend to decrease (T/F)

True

Increases in taxes on goods will cause decreases in supply and higher prices of the goods (T/F)

True

Money is a device for facilitating the exchange of goods and services,(T/F)

True

One reason many newspapers are going bankrupt is their average fixed costs are rising because more people are getting their news from the internet and there are fewer subscribers to newspapers

True

The degree of price elasticity of supply depends on how easily and quickly producers can shift resources between alternative uses.

True

The economic perspective views individuals as making purposeful choices based on the marginal analysis of costs and benefits of decisions (T/F)

True

The law of diminishing returns explains why increases in variable costs associated with each 1 unit increase in output become greater and greater after a certain point. (T/F)

True

The marginal cost curve intersects the ATC curve at the ATC curve's minimum point

True

The price elasticity of supply will tend to be more elastic in the long run

True

The marginal opportunity cost curve for the production of a good is:

Upward sloping, more produced = marginally more costly

Assume price starts out above market equilibrium price. As price moves toward equilibrium, the quantity demanded will _____ and the quantity supplied will _____

increase, decrease

Which industry comes closest to being purely competitive?

AGRICULTURE

When compared with the purely competitive industry with identical costs of production, a monopolist will charge a

HIGHER PRICE AND PRODUCE LESS OUTPUT

A perfectly competitive firm's marginal cost curve above the minimum point of its average variable cost curve is..

ITS SHORT RUN SUPPLY CURVE

The current economics problems associated with high unemployment and slow output growth are an example of

Macroeconomics

Reduction in price from 1.75 to 1.50 and as a result they sell more products. What can you conclude about the price elasticity of demand along this portion of the demand curve?

None of the above - cannot conclude without additional information (NEED % change in Q demanded)

The concept of economic efficiency is primarily concerned with

Producing useful output at lowest opportunity cost

A demand curve that is elastic:

Tends to be relatively flat, indicates that consumers make relatively large quantity adjustments to a price change, and is associated with goods that have many substitutes.

When two things are inversely or negatively related (ex. price of gasoline and Q demanded) it means:

The two things move or change in opposite directions.

When we say that two things are directly or positively related (like the price of good and quantity supplied) it means:

The two things move or change in the same direction

Which of the following if any will cause the price of a good to decrease? a. when there is surplus of the good b. when there is a decrease in supply c. when there is and increase in demand d. when there is a shortage of the good

a. when there is surplus of the good

Which would best describe the short run for a firm as defined by economics: a. plant capacity is variable b. plant capacity is fixed c. there are diseconomies of scale d. there are economies of scale

b. plant capacity is fixed

Why does an increase in the demand of a good cause its price to increase

because the initial increase in buying causes a shortage and some consumers who value the good highly will pay more rather than go without.

Why does an increase in supply of a good cause its price to decrease:

because the initial increase in its availability will cause a surplus which will cause sellers to lower price in order to sell unsold units of the good.

Which of the following is most closely related to the Economic Principle that sometimes government intervention is necessary to improve market outcomes: a. limiting the increase in the price of gas because of the disruptive effects of hurricanes in the Gulf. b. making people who do not now have health insurance purchase it c. controlling emission of green house gases and climate change caused by these gases d. reducing the high cost of rent in cities and towns with large universities.

c. controlling emission of green house gases and climate change caused by these gases

Which of the following will cause an increase in market equilibrium price and a decrease in equilibrium quantity? a. increase in supply b. increase in demand c. decrease in supply d. all of the above

c. decrease in supply

Which of the following causes the market supply curve to slope upward: a. substitution effect which changes opportunity cost of consuming a good when its price changes b. the income effect caused by a price change c. the law of increasing opportunity cost. d. decline in marginal benefits associated with consuming additional quantities of a good.

c. the law of increasing opportunity cost

Which of the following will cause a decrease in the supply of a good? a. new government regulations requiring business that produce the good to operate in a different way. b. all increases in input (factor) prices used to produce the good. c. new taxes on the good. d. all of the above

d. all of the above

Which of the following would likely cause an increase in the supply of corn? a. a decrease in input (factor) prices used to produce corn b. new subsidies to corn farmers c. decrease in price (and profits) of wheat and other crops that could be grown on same land as corn d. all of the above

d. all of the above

The demand is perfectly inelastic if:

demand curve is vertical

The law of diminishing returns states that as successive amounts of a variable resource are added to a fixed resource beyond some point total output will diminish (T/F)

false

Rent control enforcing rental rates below market equilibrium redistributes income from _______ to ______

land lords to tenants

The law of supply states that, other things equal, as price increases:

quantity supplied increases.