Microeconomics Exam
If a perfectly competitive firm increases production from 10 unites to 11 unites and the market price is $20 per unit, total revenue for 11 units is:
$220
A new wonder diet that results in dramatic weight loss sweeps through America. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, once would expect to see:
A decrease in the demand for poultry, leading to a shift to the left in the demand curve for poultry and lower poultry prices
The elasticity of demand for milk is 0.5. If the store wants to increase the quantity they sell by 10%, what must they do with the price? What will happen to the company's revenue?
Decrease by 20%; decrease
In which situation does overt collusion exist?
Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits
Given the large amount of interdependence among them, cooperation with one's competitors is the most profitable strategy for:
Oligopolists
People are forced to make choices because of
Scarcity
The first law designed to curb monopoly power in the United States was the ____ Act.
Sherman Antitrust
Suppose the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals 0.22. If congress reinstates a luxury tax on yachts, who will pay more of the tax?
Yacht builders will pay more
Specialization and trade should not lead to:
a decrease in total economic output
Unemployment decreased to its lowest level in 10 years last month. This statement is an example of
a positive economic statement
In order to engage in price discrimination a firm must be:
a price setter, and it must be able to identify consumers whose elasticities differ
A decrease in supply means:
a shift to the left of the entire supply curve
The demand curve for a monopoly is:
about the marginal revenue curve
Suppose bad weather and pollution dramatically reduce the supply of crawfish in Louisiana next year. This would most likely also lead to _____ in the marginal utility of crawfish consumption.
an increase
Antitrust policy refers to government:
attempts to prevent the acquisition of monopoly power
Suppose that each of two prisoners has the independent choice of confessing to a crime or not confessing to a crime they were both alleged to commit. If neither confesses, they will spend 2 years in jail, if both confess, they spend 3 years in jail. If one confesses and the other does not, the confessor gets off with 1 year in jail while the other gets 6 years in jail. According to game theory , the likely strategy of the prisoners is that:
both will confess
The price elasticity of demand can be found by:
comparing the percentage change in quantity demanded to the percentage change in price
The government decides to impose a price ceiling on a good because it thinks the market-determined price is "too high". If the government imposes the price ceiling below the equilibrium price:
consumers will respond to the lower price and wish to purchase more of the good than at the equilibrium price
If the government allowed only one airline to serve the entire U.S market, there would be a _____ loss associated with _____ efficiency in the airline industry.
deadweight; reduced
In a perfectly competitive industry, the market demand curve is usually:
downward sloping
The demand curve facing a monopolist is:
downward sloping, like the industry demand curve in perfect competition
If all of the opportunities to make someone better off (without making someone else worse off) have been exploited, an economy is:
efficient
Which statement is an example of a normative statement?
everyone in America deserves to be covered by national health insurance
Which condition is necessary for perfect competition?
firms produce a standardized product
Because a monopolistically competitive firm faces a downward-sloping demand curve for its product , its price will be:
greater than marginal revenue
When the demand curve slopes downward, it means that:
higher prices are associated with lower quantities demanded
On a sparsely-populated island, high-speed internet service would have a _____ marginal utility than in New York City, whereas quiet evenings in a New York City would carry a _______ marginal utility than on a deserted island.
higher; higher
A tax that takes a ___ percentage of income as income rises is _____.
higher; progressive
Assuming a normal upward-sloping supply curve and downward-sloping demand curve, if the government imposes a $5 excise tax on leather shoes and collects the tax from the suppliers, the price of leather shoes will:
increase by less than $5
The phrase "gains from trade" refers to the:
increase in total output that is realized when individuals specialize in particular tasks and trade with one another
A negative externality:
is an uncompensated cost imposed by an individual or firm on others
For a perfectly competitive firm, marginal revenue:
is equal to price
In an oligopolistic market structure, collusion between firms usually leads to higher profits than non-cooperative behavior. However, formal, overt collusion doesn't usually occur in the United States because:
it is illegal and because there is an incentive for each firm to cheat on a collusive agreement
A binding price ceiling is designed to:
keep prices below the equilibrium level
Assume that diminishing marginal utility applies to both coffee and football tickets and that the consumer is spending all of their income. If a consumer purchases a combination of coffee and football tickets such that MUcoffee/Pcoffee = 20 and MUfootball tickets/Pfootball tickets = 10, to maximize utility, the consumer should buy:
more coffee and fewer football tickets
Assume an economy is operating on its production possibility frontier, which shows the production of military and civilian goods. If the output of military goods is increased, the output of civilian goods:
must decrease
Which example illustrates a nonexludable good?
national defense
For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have _____ on prices and beef must be a _____ product.
no noticeable effect; standardized
Advertising is an example of:
nonprice competition
A common resource is a good or service for which exclusion is:
not possible and which is rival in consumption
If drivers decide to make phone calls without considering the costs imposed on others, the:
number of phone calls made while driving will be more than the socially optimal quantity
The demand curve for a perfectly competitive firm is:
perfectly elastic
If the government imposes a $5 excise tax on leather shoes and the price of leather shoes does not change:
producers are paying all of the tax
In contrast to perfect competition, a monopoly:
produces less at a higher rate
When the price of lamps increases, the:
quantity supplied increases
The incidence of tax:
refers to how much of the tax is actually paid by consumers and producers
How much _________ Susan obtains from eating green beans is a measure of the utility of green beans
satisfaction
The market for milk is initially in equilibrium. Milk producers engage in an advertising program to encourage milk drinking, which succeeds in shifting consumer tastes toward drinking milk. At the same time, more milk producers enter the market. Standard demand and supply analysis states that:
the equilibrium quantity of milk will rise, but one cannot determine how the equilibrium price will be affected
Perfect competition is characterized by
the inability of any one firm to influence the price
At the optimal consumption bundle:
the marginal utility per dollar spent is equal for all goods consumed
Market structures are categorized by which two criteria?
the number of firms and whether or not products are differentiated
If demand is elastic, then:
the quantity effect dominates the price effect, and a decrease in a price causes total revenue to rise
Which of these is an example of a negative externality?
the risks to nonsmokers from second-hand smoke
Opportunity cost is:
the value of the best alternative forgone in making any choice
Total revenue is a firm's:
total output time the price at which it sells that output
For economists, the satisfaction an individual derives from the consumption of goods and services is best described as:
utility
OPEC is:
-Organization of Petroleum Exporting Countries -an international cartel made up of oil-producing countries -the cartel responsible for large increases in crude oil prices in the 70's
If Farmer Sam MacDonald can produce 200 pounds of cabbages and 0 pounds of potatoes or 0 pounds of cabbages and 100 pounds of potatoes and he faces a linear production possibility frontier for his farm, the opportunity cost of producing an additional pound of potatoes is ____ pounds of cabbage
2
Goods and services purchased from abroad are ______: goods and services sold abroad are __________.
Imports; exports
Lucky Charms is a popular breakfast cereal. If the cereal company decides to invest in advertising, which of the following is true of advertising?
It is meant to increase the demand for Lucky Charms, not to increase demand for breakfast cereal
In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. Which equation must be true for this firm?
MR = MC and P = ATC
In all of the follow market structures, an individual firm faces a downward-sloping demand curve, except:
Perfect Competition
______ is the practice of selling ________ at different prices to different consumers, without corresponding differences in costs.
Price discrimination, the same product
Consider the market for iPods. What happens if a popular new alternative MP3 player is developed and at the same time a boat carrying a large shipment of iPods is attacked by pirates and sunk?
The change in price in indeterminate and quantity decreases
Consumer surplus for an individual buyer is equal to:
The consumer's willingness to pay for the good minus the price of the good
