MicroEcon Test 1 (Chapter 1-8)

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The market system's answer to the fundamental question "What will be produced?" is essentially

"goods and services that are profitable."

The market system's answer to the fundamental question

"those willing and able to pay for them"

Which of the following statements best reflects the concept of present value

"you owe me $500, due at the end of the year, but I will reduce your debt to $450 if you pay me now."

Refer to the above data. The average total cost of producing 3 units of output is

$16

Refer to the above data. Equilibrium price will be

$2

Refer to the above data. The total variable most of producing 5 units is

$37

Refer to the above data. The value for Y is

45

in the untied states professional football players earn much higher incomes than professional soccer players. This occurs because

consumers have greater demand for football games than for soccer games

In general, risk levels and average expected rates of return are

directly related

Owners of stock can receive ___ from their shares, sellers of stock can receive ___ from selling their shares

dividends; capital gains

According to behavioral economics

each successive unit of loss hurts, but less than the previous unit

Refer to the above diagram. If this competitive firm produces output Q it will

earn a normal profit

The primary force encouraging the entry of new firms into a purely competitive industry is

economic profits earned by firms already in industry

Non-diversifiable risk refers to potential losses from

events that move all investments in the same direction, like unexpected political of economic shocks

Economic profits are calculated by subtracting

explicit and implicit costs from total revenue

What is the difference between economic and financial investments

financial investments include all purchases undertaken with the expectation of financial gain; economic investments include only purchases of new capital goods

Which of the following is most likely to be a variable cost

fuel and power payments

Refer to the above diagram. Flow 3 represents:

goods and services

Which type of goods is more adversely affected by recessions

goods for which the income elasticity coefficient is relatively high and positive

The labor supply curve for a particular occupation is upsloping because

higher wages will be needed to attract workers from other occupations

The simple circular flow model shows that:

households are on the selling side of the resource market and on the buying side of the product market.

The production possibilities curve illustrates the basic principle that:

if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced

The U.S. Federal government is unlikely to default on its bond payments because

if necessary, it can print the money needed to make payments on time

With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will

increase equilibrium price and quantity if the product is a normal good

Refer to the above diagram. The decline in price from P1 to P2 will

increase total revenue by D - A

One can say with certainty that equilibrium price will decline when supply

increases and demand decreases

Over time, the equilibrium price of a gigabyte of computer memory has fallen while the equilibrium quantity purchased has increased. Based on this we can conclude that

increases in the supply of computer memory have exceeded increases in demand

The real wage will rise if the normal wage

increases more rapidly than the general price level

The hedonic treadmill refers to a phenomenon where

increasing our level of consumption doesn't make us any happier in the long term

Refer to the above table. Over the $6-$4 price range, supply is

inelastic

Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be

inelastic for price declines that increase quantity demanded form 6 units to 7 units

The process of producing and accumulating capital goods is called:

investment

If a product is in surplus supply, its price

is above the equilibrium level

Microeconomics:

is concerned with individual economic units and specific markets.

Refer to the above diagram. At output level Q average fixed cost

is measured by both QF and ED

If total utility is increasing, marginal utility

is positive, but may be either increasing or decreasing

The utility of a good or services

is the satisfaction or pleasure one gets from consuming it

Refer to the above diagram. Other things equal, this economy will achieve the most rapid rate of growth if

it chooses point A

Which of the following is a normative statement?

it is too hot to play tennis today

If a firm decides to produce no output in the short run, its cost will be

its fixed costs

The four factors of productions are:

land, labor, capital, and entrepreneurial ability

The above diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the

long run, short run, and immediate market period respectively

The problems of aggregate inflation and unemployment are:

major topics of macroeconomics

In the short run the individual competitive firm's supply curve is that segment of the

marginal cost curve lying above the average variable cost curve

A nation's production possibilities curve is bowed out from the origin because:

resources are not equally efficient in producing every good

Refer to the above diagram. At output level Q2

resources are over allocated to this product and productive efficiency is not realized

Refer to the above diagram. At output level Q1

resources are undercoated to this product and productive efficiency is not realized

The price elasticity of supply measures how

responsiveness the quantity supplied of X is to changes in the price of X

An improvement in production technology will

shift the supply curve to the right

Economics may be best defined as the:

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

A leftward shift of a product supply curve might be caused by

some firms leaving an industry

Diversifiable risk refers to risk

specific to a particular investment

The concept of opportunity cost

suggests that the use of resources in any particular line of production means that alternative outputs must be forgone

Refer to the above table. As compared to production alternative D, the choice of alternative C would:

tend to generate a more rapid growth rate

Refer to the above diagram. The vertical distance

the average fixed cost at each level of output

What are the two most important factors influencing investor preferences

the desire for high rates of return and dislike of risk and uncertainty

Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that

the economy was not employing all of its resource before the policy change

The above diagram portrays

the equilibrium position of a competitive firm in the long run

The diamond-water paradox occurs because

the price of a product is related to its marginal utility, not its total utility

Employers will hire more units of a resource if

the productivity of the resource increases

Which of the following will not produce an outward shift of the production possibilities curve?

the reduction of unemployment

It takes a considerable amount of time to increase the production of beef. This implies that

the short-run supply curve for beef is less elastic than the long-run supply curve for beef

The price of old baseball cards rises rapidly with increase in demand because

the supply of old baseball cards is price inelastic

Which of the following is a positive statement?

the temperature is 92 degrees today

Which of the following decreases labor demand is due to a change in product demand?

the widespread availability of news on the Web reduces the demand for newspaper workers

Refer to the above data. Diminishing marginal returns become evident with the addition of the

third worker

Firms seek to maximize

total profit

Refer to the above diagram, which pertains to a purely competitive firm. Curve A represents

total revenue only

The theory of consumer behavior assumes that consumers attempt to maximize

total utility

Refer to the above diagram. Flow 1 represents:

wage, rent, interest and profit income

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

will also be $5

Where total utility is at a maximum, marginal utility is

zero

Refer to the above data. The average fixed cost of producing 3 units of output is

$8

Refer to the above data. The marginal cost of producing the sixth unit of output is

$8

Refer to the above data. The value for Z is

-5

Refer to the above diagram. At output level Q total

0BEQ

Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be:

1/3 of a unit of capital goods

Refer to the above data. The value for X is

15

Refer to the above data. The value for W is

20

The price elasticity of demand for widest is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a

20 percent reduction in price

Refer to the above diagram. Total revenue at price P1, is indicated by area(s)

A + B

Refer to the above diagram. At output level Q total fixed cost is

BCDE

Refer to the above diagram. This economy will experience unemployment if it produces at point

D

Which of the following conditions is true for a purely competitive firm in long-run equilibrium

P=MC=minimum ATC

What do the income effect, the substitution effect, and demising marginal utility have in common

They all help explain the downsloping demand curve

A rightward shift in the demand curve for product C might be caused by

a decrease in the price of a product that is complementary to C

Suppose that a girl has "pricing power" and can segregate its market into two distinct groups based on differences in elasticities of demand. The firm might charge

a higher rice to the group that has the less elastic demand

Refer to the above diagram. A price of $20 in this market will result in

a shortage of 100 units

The failure of Soviet central planning was reflected in:

all of the above

The main determinant of elasticity of supply is the

amount of time the producer has to adjust inputs in response to a price change

Which of the following best expresses the law of diminishing returns

as successive amounts of one resource (labor) are added to fixed amounts of other resources (property), beyond some point the resulting extra output will decline

The basic difference between the short tun and the long run is that

at least one resource is fixed in the short ru, while all resources are variable in the long run

Refer to the above diagram, which pertains to a purely competitive firm. Curve C represents

average revenue and marginal revenue

A person should consume more of something when its marginal:

benefit exceeds its marginal cost.

Which of the following is both an economic and financial investment

boeing corporation building a new factory

The price elasticity of demand coefficient measures

buyers responsiveness to price changes

Refer to the above data. The profit-maximizing output for this firm

cannot be determined from the information given

When patents on new medications expire, the market or those drugs

change from being monopolistic to being competitive

The idea that money has "time value" refers to the fact that

compound interest converts current dollars into a greater amount of future dollars

Refer to the above diagram. Flow 4 represents:

consumer expenditures

The introduction of ATM machines has

decreased the demand for a substitute resource human tellers

If X is a normal good, a rise in money income will shift to the

demand curve for X to the right

The law of diminishing marginal utility explains why

demand curves slope downwards

The demand for a productive resources is said to be "derived" because the demand for the factor

depends on the demand for the product it helps to produce

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company

depreciation charges on company-owned equipment

The two general types of economic systems that exist today are:

market systems and capitalism

Money is not an economic resource because:

money, as such, is not productive

Assume an economy is incurring unemployment. The effect of resolving this problem will be to

move to the level of actual output to the economy's production possibilities curve.

Assume an economy is operating at some point on its production possibilities curve, which shows civilian and military goods. If the output of military goods is increased, the output of civilian goods

must be decreased

Mary says, "You would have to pay me $50 to attend that pro westing event." For Mary, the marginal utility of the event is

negative

Wage determined in labor markets is important because

of all of these reasons

The basic formula for the price elasticity of demand coefficient is

percent change in quantity demanded/percentage change in price

The scarcity problem:

persists because economic wants exceed averrable productive resources

For economics, the word "utility" means:

pleasure and satisfaction.

Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is

positive and therefore X is a normal good

An unprofitable motel will stay open in the short-run if

price (average nightly room rate) exceeds average variable cost

The law of demand states that

price and quantity demand are inversely related

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that

price is greater than marginal cost

Oil wells and seasonal resorts will often shut down temporary because

prices for their output temporarily fall below their average variable costs of production

If the supply and demand curve for a product both decrease, then equilibrium

quantity must decline, but equilibrium price may either rice, fall, or remain unchanged

If we say that a price is too high to clear the market, we mean that

quantity supplied exceeds quantity demanded


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