Microeconomics 2106 Final Exam Review
Why is economics built on the assumption that people are rational?
(i) Although they are not always true, the assumptions for economic models are true enough of the time to accurately represent models of economic behavior. (iii) Economists are satisficers themselves.
A Chinese consumer purchases a TV produced in China.
***neither*** an import or export
Tanesha lives in Tennessee and buys an orange grown in Florida.
***neither*** an import or export
Andrina always spends 2020% of her income on gizmos. Assume that her income increases by some percentage while the price of gizmos remains constant, and that all gizmos cost the same. What is her income elasticity of demand, EI, for gizmos? E1 equals
1.
Regulation is most likely to occur in a market with a Herfindahl-Hirschman Index (HHI) of
2500
During the Obama administration, the development of low‑cost batteries for electric cars received large amounts of federal funding via subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero‑emissions electric vehicles, where there is an upward‑sloping supply curve and a downward‑sloping demand curve. In which direction will demand and supply shift?
Both curves will shift right.
Identify the barrier to enter a. Coca‑Cola's vast market share in the soft drink market:
Brand loyalty
Which has been shown to be true in the United States about changes in the minimum wage rate?
Changes in the minimum wage have historically had a small impact on employment.
Suppose that in the market for cell phone service the number of competitors has dwindled until Cellaphone and SouzaPhone have become the only providers left in the nation. Seeking to boost their profits, the two companies secretly agree to a coordinated increase in their prices for cell phone minutes. This practice is known as
Collusion
Concentration ratios are used to gauge market structure and thus the degree of competition in an industry. What are the greatest drawbacks of using only these measures to gauge market structure?
Concentration measures are limited in their ability to reflect free entry into markets. In addition, concentration measures reflect national markets, which can misrepresent competitiveness in local and regional markets.
China's control of the market for rare earths (a group of minerals used to produce electronics)
Control of a resource
Which of the following is a legal rule that prohibits copying of material in order to protect the rights of those responsible for the creation of the good?
Copyright
Identify the true statement.
Deregulation can describe either removing government control of the price of a good or the removal of government control of quantities.
Identify the true statement.
Deregulation has led to increased instability for firms and is associated with higher rates of entry and exit.
The local utility company that can provide electricity to the entire market at a lower average cost than other producers:
Economies of scale
A farmer in Iowa sells corn to a food processing plant in China.
Export
ConocoPhillips, a U.S. based oil company, sells oil to oil refineries in Brazil and Mexico.
Export
Which of the statements is true of the long‑run industry supply curve (LRIS)?
External diseconomies result in an increasing cost industry and an upward sloping LRIS curve.
An individual firm in a perfectly competitive market can obtain a higher price for its product by reducing output. T/F
False
An individual firm in a perfectly competitive market must lower its price to sell more of its product. T/F
False
In general, the market demand curve in a perfectly competitive market is perfectly elastic. T/F
False
A firm's ___are costs that are incurred even if there is no output. In the short run, these costs ___as production increases.
Fixed costs; do not change
How can a kinked demand curve indicate that the firms in the oligopoly will continue to behave as a cartel and not have an incentive to deviate from the cartel?
If the firms in the oligopoly collude to restrict output, the firms implicitly agree to cut prices if a firm in the oligopoly cuts prices.
Colby lives in the U.S. and purchases a video game produced in Japan.
Import
Brayden receives some utility from consuming a frozen dinner (an inferior good) but would much rather purchase healthier food (a normal good). Suppose the price of a frozen dinner increases and the quantity that Brayden purchases increases. Assume that a frozen dinner is not a Giffen good. Which effect causes Brayden's quantity demanded of a frozen dinner to increase?
Income effect
Don't Fret, a guitar manufacturing firm, is deciding how to allocate its resources. Suppose that the marginal product of labor is 18 guitars per hour and that the marginal product of capital is 20 guitars per hour. Hiring another worker will cost Don't Fret $3 per hour and purchasing more capital will cost the equivalent of $5 per hour. Use the least-cost rule to answer the questions. How should Don't Fret change its spending in order to produce at the lowest possible cost?
It should alter its spending so that the marginal products per dollar spent on each input are equivalent.
Pfizer's control of the production of Viagra:
Legal barrier
The government of the country of Burnination is trying to encourage its workers to work more. They first attempt an advertising campaign featuring Prime Minister Trogdor yelling at the camera and calling the viewers a bunch of lazy bums whose thatched‑roof cottages should be burned to the ground. This fails miserably. Finance Minister Pom Pom suggests an alternative policy of reducing the income tax rate. What would you expect would be the most likely outcome of this policy?
Lower earning workers will work more, but higher earners will work less, because of a backward‑bending supply curve for labor.
A person blames inflation for the general increase in prices at the grocery stores throughout British Columbia. -Microeconomics -Macroeconomics
Macroeconomics
The Canadian unemployment rate was lower in January of 2014 than it was in January of 2012. -Microeconomics -Macroeconomics
Macroeconomics
A person gets a raise at work. -Microeconomics -Macroeconomics
Microeconomics
In January of 2014, a person made a personal budget. -Microeconomics -Macroeconomics
Microeconomics
Identify the true statement.
Most often, deregulation has resulted in prices decreasing.
Facebook's position in social media:
Network Externalities
Which restrictive practice is an example of bundling? -Retailers sell an electric grill at a price of $5, significantly undercutting the market. -A mobile phone manufacturer requires all retailers to sell its new phone at a price of at least $299. -A unique supermarket chain sells only its self‑branded products. -A supermarket offers a free pack of hot dog buns with a purchase of hot dogs for the Fourth of July. -***None of the choices are correct.***
None of the choices are correct.***
Regulation is most likely to occur in a market characterized as
Oligopolistic
Which is true of the minimum wage in the United States?
Only about 1% of the United States population receives the minimum wage rate.
Which of the following describes rules created by governments that allow for exclusivity in sales, use, and production of an invention for a limited period?
Patent
Which of the following is not a reason why negative consequences can result from efforts to control prices?
Prices reflect the amount of profit that producers want to gain for providing goods, services, labor, or financial capital to the market.
As a result of the accounting fraud that led to the demise of Enron, what legislation was passed to protect investors by improving financial disclosures and preventing accounting fraud?
Sarbanes- Oxley Act
Brayden receives some utility from consuming a frozen dinner (an inferior good) but would much rather purchase healthier food (a normal good). Suppose the price of a frozen dinner increases and the quantity that Brayden purchases increases. Assume that a frozen dinner is not a Giffen good. Which effect causes Brayden's quantity demanded of a frozen dinner to decrease?
Substitution Effect
During the Obama administration, the development of low‑cost batteries for electric cars received large amounts of federal funding via subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero‑emissions electric vehicles, where there is an upward‑sloping supply curve and a downward‑sloping demand curve. What will happen to the equilibrium price?
The price will change amibuously.
Which is not a feature of the four-firm concentration ratio?
The ratio considers differences between the market shares of the top four firms.
Which statement is the best definition of the price elasticity of demand?
The ratio of the percent change in quantity demanded to the percent change in price.
Which of the given factors is an assumption of perfect competition?
There are a large number of producers in the market.
Assuming that product differentiation is successful, which of the statements best describes how advertising can affect the demand curve for the monopolistically competitive firm?
Through the use of advertising, the demand curve for the monopolistically competitive firm is either going to become more inelastic, (i.e., steeper) or the demand curve will shift to the right.
Which of these scenarios is NOT an example of a barrier to entry?
Tinseltown Theaters shows almost all of the most popular newly released movies.
Which of the following is a word, name, symbol or device that shows the creator of the good and can only be used by that firm?
Trademark
In a perfectly competitive market, average revenue is equal to the market price. T/F
True
In a perfectly competitive market, marginal revenue is equal to the market price. T/F
True
In general, an individual firm in a perfectly competitive market faces a perfectly elastic demand curve. T/F
True
A firm's ___ are costs that increase as quantity produced increases. These costs often show ___by increasing at an increasing rate.
Variable costs; diminishing marginal returns
When is it legal to pay workers in the United States an hourly rate that is less than the federal minimum wage?
When they are an employee that depends on tips for their wages
You have a part-time job that pays $8 per hour. Your manager has asked you to work four extra hours on Friday night, but you already have plans for dinner and a movie with a friend on Friday night. Under what conditions will you choose to work on Friday night? Consider the economic way of thinking in answering this question; also assume that you are rational (even if you do not think you are rational) and can afford dinner and a movie.
You value the extra pay more than the Friday night activities (in terms of marginal benefits, marginal costs, and your utility).
When Andrew is in college he has a small income and has to make his own cheap coffee. After he graduates his income increases to a healthy $75,000 a year and he now buys Starbucks daily. Andrew's demand for Starbucks coffee changed as a result of
a change in income
Various forms of capital are used in the production of final goods and services. However, the term financial capital market refers to
a market where savers and borrowers interact.
Which phrase best describes utility? Utility is
a measure of consumer satisfaction.
Penny is a consumer with a tight budget. The share of her budget spent on goods and services is significant in determining how well she is able to respond to price changes. Based on this criteria, for which good would you expect Penny's demand to be the most elastic?
a new car
Three friends start a bakery in the east side of a city. There is a higher demand for baked goods on the west side of the city, but the bakery's owners refrain from expanding there due the large number of well-established bakeries already there. The east side bakery owners are
acting competitively by avoiding a poor business decision.
Given an equilibrium level of output in an oligopoly market, each firm may face a kinked demand curve because the firms
agree to cut prices if another firm cuts prices.
Most hot dog carts in a city sell hot dogs for $3.00 each. Each stand makes comparable products, but each is independently owned and operated. The marginal cost of selling hot dogs on the street is around $1.00, but owners have maintained the $3.00 price point for several years. The cart owners are not in regular contact. Hot dog vendors in. this city
are colluding with one another but not as part of a cartel.
A city has two major nut vending companies. I.M. Nutz operates roasted nut carts on the north side of the city, while Go Go Nuts operates carts on the south side of the city. Both companies operate at high margins and have a robust distribution infrastructure that would allow them to operate city-wide, but each company operates exclusively on its end of town. I.M. Nutz and Go Go Nuts
collude with one another to maintain market power in their respective areas.
Total inefficiency caused by a tax is also known as
deadweight loss
Governments that are interested in minimizing the efficiency costs of taxation should only tax goods where
demand or supply, or both, are relatively inelastic.
How do economists measure utility? Economists
do not measure utility. It is a hypothetical measure used for modeling behavior.
Thinking about scarcity in terms of the economic way of thinking, why does scarcity exist? Select the most complete explanation. Scarcity:
exists because people virtually have unlimited wants and because the earth has a limited supply of land, labor, capital, and entrepreneurial ability.
Which choice is not a characteristic of a competitive market?
firms have some degree of control over prices
Which statement is not likely to occur in a competitive free market economy?
firms unable to adapt or innovate continuing to operate due to government support
Landscaping company owners in a county hold an annual meeting at a hotel. There, owners make contact with industry leaders, share cost-saving ideas, and set minimum prices for services in the coming year. Owners who set prices below these minimums are not invited to next year's meeting. Landscaping company owners who attend the meeting.
have formed a cartel.
How does an increase in the budget deficit of Bhutan affect its equilibrium interest rate? The equilibrium interest rate
increases, since the demand curve for financial capital shifts to the right.
Regulation is more likely to occur in
narrowly defined markets.
Which example best represents perfectly inelastic supply?
original paintings made by Leonardo Da Vinci
The four-firm concentration ratio is useful for
providing a rough gauge of the distribution of market power in a given market
Don't Fret, a guitar manufacturing firm, is deciding how to allocate its resources. Suppose that the marginal product of labor is 18 guitars per hour and that the marginal product of capital is 20 guitars per hour. Hiring another worker will cost Don't Fret $3 per hour and purchasing more capital will cost the equivalent of $5 per hour. Use the least-cost rule to answer the questions. In order to reach the least costly combination of resources, Don't Fret should
spend less on capital and shift that spending to labor.
Scarcity is
the economic problem of having limited resources to satisfy unlimited wants.
Deregulation is characterized as
the elimination or reduction of government restrictions on the number of firms, prices the firms charge, and the quantity of products produced
It is Valentine's Day and Pierre wants to buy his girlfriend Madeline a dozen long‑stemmed roses to show his love for her. He walks into a new neighborhood flower store and reads a plaque next to the roses. Apparently, the roses were grown by farmers in Nairobi, Kenya. What was not mentioned on the plaque was that a shipping company packed them, a pilot flew them on a refrigerated plane, and a trucking company took them to the floral shop. The flower shop owner thought that since the town did not have a flower shop, she could capitalize on the market. Pierre buys a dozen roses from the shop for $60 and presents them to Madeline, much to her delight. What main principle does this story best illustrate?
the invisible hand
Prices incorporate information about each statement except
the number of firms in a competitive market.