Microeconomics Midterm Study
Which of the following statements best describes the concept of consumer surplus?
"I was going to pay $200 for new sunglasses that I had seen at the Oakley store but I ended up paying only $140 for the same sunglasses."
If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is
$40
If, when price changes by 50%, the quantity demanded changes by 15%, what is the elasticity of demand value?
-0.30
Suppose the marginal utilities for the first three cans of soda are 100, 80 and 60, respectively. The total utility received from consuming 2 cans is
180
This table shows Antonio's utility from beer and pizza. Quantity of Beer (glasses) Total Utility Quantity of Pizza (slices) Total Utility 1 25 1 20 2 45 2 35 3 60 3 45 4 65 4 50 5 69 5 52 6 70 6 52 What is Antonio's marginal utility from consuming the fifth beer?
4 utils
The table summarizes production at the Crunchy Apple Orchard for the month of April 2005. What is the marginal product of the 4th worker? Number of Workers Apples per Day (bushels) 1 50 2 120 3 180 4 230 5 270 6 300
50 bushels
This table summarizes production at the Crunchy Apple Orchard for the month of April 2005. Referring to the data in the table, what is the average product of labor when the orchard employs 5 workers? Number of Workers Apples per Day (bushels) 1 50 2 120 3 180 4 230 5 270 6 300
54 bushels
A movement along the demand curve for toothpaste would be caused by
A change in price of toothpaste
Farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase?
A decrease in the price of corn
An increase in the demand for bananas will NOT be caused by:
A drop in the market price of bananas
The production possibilities frontier model can be applied to
A firm, an individual, and the whole economy
Comparative advantage means:
A producing unit can produce a good or service at a lower opportunity cost than any other producing unit
What is the difference between an 'increase in supply' and an 'increase in quantity supplied'?
An 'increase in supply' means the supply curve has shifted to the right while an 'increase in quantity supplied' refers to a movement along a given supply curve in response to an increase in price.
Two firms would sometimes be better off if they got together and agreed to charge a high price, rather than to compete and risk having to charge a lower, competitive price. What is the greatest deterrent to this strategy?
An agreement by firms to charge high prices is illegal. The government can fine the firms and send their managers to jail.
An economist observes two consumers in a supermarket. One of the consumers buys a case of Coca-Cola and the other buys a case of Pepsi-Cola. Both colas sell for the same price and the ages and incomes of the consumers are also the same. Based on this information, how would the economist explain the consumers' choices?
Apparently, the consumers had different tastes.
The law of demand implies, holding everything else constant, that:
As the price of bagels increases, the quantity of bagels demanded will decrease
Which of the following is the correct way to describe equilibrium in a market?
At equilibrium quantity demanded equals quantity supplied
Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?
At least $125,000
You have absolute advantage whenever you:
Can produce more of something than others with the same resources
Assume that China has a comparative advantage in producing corn and exports corn to Japan. We can conclude that
China has a lower opportunity cost of producing corn relative to Japan.
If the price of gasoline doubles while your income is constant:
Consumer purchasing power has decreased and consumers buy less of everything
If a demand curve shifts to the right, then
Demand has increased
Which of the following statements explains the difference between diminishing returns and diseconomies of scale?
Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run.
Which of the following statements is true?
Each country as a whole is made better off as a result of international trade, but individuals within each country may be made worse off.
An outward shift of a nation's production possibilities frontier represents
Economic Growth
If there are many substitutes available for a product demand for that good is likely to be
Elastic
True or False: If the number of firms producing mouthwash increases and consumer preference for mouthwash increases, the equilibrium price of mouthwash will definitely increase
False
True or false: scarcity is defined as the situation that exists when the quantity demanded for a good is greater than quantity supplied
False
The production possibilities frontier shows that
If all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good
Which of the following describes the difference between "scarcity" and "shortage"?
In the economic sense, almost everything is scarce. A shortage of a good or service occurs when the quantity demanded is greater than the quantity supplied at the current market price.
How are sunk costs and fixed costs related?
In the short run they are equal to each other
If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be
Inelastic
A good for which demand increases when income decreases is called
Inferior good
Which of the following statements best describes the economic short run?
It is a period during which at least one of the firm's inputs is fixed.
Linda and Sandy own The Preppy Puppy, a dog grooming business. This table lists the number of dogs Linda and Sandy can each bathe and groom in one week. Bathing Grooming Linda 60 20 Sandy 50 25 Select the statement that accurately interprets the data in the table.
Linda has an absolute advantage in dog bathing and Sandy has an absolute advantage in dog grooming.
The term ____ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade
Market
The demand by all the consumers of a given good or service is the _____ for the good or service
Market Demand
The existence of a shortage in a market will cause
Market price to rise and quantity supplied to increase
The production possibilities frontier shows the ______ combinations of two products that may be produced in a particular time period with available resources
Maximum Attainable
A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a
Nash equilibrium
Ordinarily, governments attempt to promote competition in markets. Why do governments use patents to block entry into some markets when this prohibits competition?
Patents encourage firms to spend money on research necessary to create new products.
Carrie Bradshaw claims that when it comes to buying shoes, "price is no object." If this is true, then her demand for shoes is
Perfectly Inelastic
If a firm raised its price and discovered that its total revenue fell, then the demand for its product is
Relatively Elastic
As the average age of the population of the United States gets older, the demand for:
Retirement homes will increase
The study of economics focuses on the choices individuals/societies make. Choices arise due to:
Scarcity of Resources
Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?
Some consumers will be unable to obtain digital music players at the market price, and will have an incentive to offer to buy the product at a higher price
Health Clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year. Which of the following is the best explanation for this behavior?
Some people are overly optimistic about their future behavior.
If the price of automobiles were to increase, then
The demand for gasoline would decrease
Refer to the table below. Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the mid-point formula and these data. Select the correct implication from your work. Table Price Quantity $35 40 25 50
The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered.
Refer to the table below. Assume that an economist has estimated the price elasticity of demand values in the table above. Use the data in the table to select the correct statement. Estimated Price Elasticity of Demand Coca-Cola -3.0 All carbonated soft drinks -1.5 All soft drinks -0.8
The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be.
Which of the following is a characteristic of a firm in a perfectly competitive market?
The firm can sell as much as it wants without having to lower its price
If a firm expects that the price of its product will be lower in the future than it is today
The firm has an incentive to increase supply now and decrease supply in the future
If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?
The firm will not sell any output
Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12. Which of the following will happen?
The firm will not sell any output
Which of the following is explained by the law of diminishing marginal utility?
The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third bottle of Coca-Cola.
A demand curve shows the relationship between
The price of a product and the quantity of the product demanded
Which of the following is evidence of a surplus of bananas?
The price of bananas is lowered in order to increase sales
One would speak of the change in the quantity of a good supplied, rather than a change in supply if
The price of the good changes
A change in all of the following variables will change the market demand for a produce except which one?
The price of the product
At a product's equilibrium price
The product's demand curve crosses the product's supply curve
The popularity of digital cameras has enticed large discount stores like Wal-Mart and Costco to offer digital photo printing services. How does this affect the digital photo printing market?
The supply curve for digital photo printing services shifts to the right
This table lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market. How many pounds of apples should Margie sell to maximize her profit? Apples (pounds) Market Price per Pound Total Revenue (TR) Average Revenue (AR) Marginal Revenue (MR) 0 $3 $0 ----- ----- 100 150 200 250 300 350 400
This cannot be determined without knowing Margie's total or marginal production costs.
Which of the following statements is true?
Total cost = fixed cost + variable cost.
The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of:
Trade-Off
True or False: As the number of firms in a market decreases, the supply curve will shift to the left and the equilibrium price will rise
True
True or False: The price elasticity of demand for Kellogg's Raisin Bran is larger in absolute value than the price elasticity for all breakfast cereals.
True
True or false: In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplied will decrease until equilibrium is reached.
True
Which of the following statements is true about monopolistically competitive firms?
Unlike perfectly competitive firms, monopolistically competitive firms are able to raise their prices without losing all of their customers.
A succesful market economy requires
Well-defined property rights and an independent court system to adjudicate disputes based on the law
Which of the following statements is true?
When a firm lowers its price its total revenue may either increase or decrease.
Which of the following statements is true?
When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even
There is a deadweight loss:
Whenever the market is forced away from the competitive equilibrium
When Roxanne, a U.S. citizen, purchases a designer dress from Barneys of New York that was made in Milan, the purchase is
a U.S. import and an Italian export.
When ________ in a market, the total net benefit to society is maximized.
a competitive equilibrium is achieved
Which of the following is the best example of a perfectly competitive firm?
a corn farmer in Illinois
An explicit cost is defined as
a cost that does not change as output changes
The relationship between consumer spending and disposable personal income is
a direct relationship
A monopolistically competitive market is described as one in which there are
a large number of firms selling similar, but not identical, products
An equilibrium in a game in which players pursue their own self-interest is called
a noncooperative equilibrium
The minimum wage is an example of
a price floor
An agreement negotiated by two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country is called
a voluntary export restraint
If an increase in income leads to a decrease in the demand for popcorn, then popcorn is
an inferior good
The law of diminishing marginal returns
applies only in the short run.
Firms that are price takers
are able to sell all their output at the market price
Optimal decisions are made
at the margin.
Oligopoly differs from perfect competition and monopolistic competition in that
because oligopoly firms often react when other firms in their industry change their prices, it is difficult to know what the oligopolist's demand curve looks like
We can derive the market demand curve for gold earrings
by adding horizontally the individual demand curves of each gold earring consumer.
Both monopolistically competitive firms and perfectly competitive firms maximize profits
by producing where marginal revenue is equal to marginal cost
You have comparative advantage whenever you
can produce at a lower opportunity cost than others
An economic principle that explains why countries produce different goods and services is
comparative advantage.
In a competitive market when there is no deadweight loss,
consumer surplus plus producer surplus is maximized
The government proposes a tax on halogen light bulbs. Sellers will bear the entire burden of the tax if the
demand curve for halogen bulbs is horizontal
Tastes for products such as beer differ. As a result
different countries may each have a comparative advantage in producing different types of beer
Wall Street, in the borough of Manhattan in New York City, is the heart of the U.S. financial system, where banks, brokerage houses, other financial firms, and the New York Stock Exchange are all located. What is the reason for New York City's comparative advantage in the financial market?
external economies
The study of how people make decisions in situations in which attaining their goals depends on their interactions with others is called
game theory
To be a natural monopoly a firm must
have economies of scale that are so large that it can supply the entire market at a lower cost than two or more firms
A perfectly competitive firm faces a demand curve that is
horizontal
A tariff is a tax imposed by a government on
imports
Goods and services bought domestically but produced in other countries are referred to as
imports
Which of the following is not part of an oligopolist's business strategy?
independently setting a product's price without consideration of its rivals' pricing policies
Hewlett-Packard will not raise the prices of its personal computers without first considering how Dell might respond. This is evidence of
interdependence
A horizontal merger
is a merger between firms in the same industry
A supply schedule
is a table that shows the relationship between the price of a product and the quantity of the product supplied
Protectionism
is the use of trade barriers to protect domestic firms from foreign competition
The Organization of Petroleum Exporting Countries (OPEC) controls about 75 percent of the world's proven oil reserves. Economists refer to OPEC as a cartel because
it is a group of firms that collude to restrict output to increase prices and profits
The long run refers to a time period
long enough for a firm to vary all of its inputs, to adopt new technology and change the size of its physical plant.
For a perfectly competitive firm, at profit maximization
marginal revenue equals marginal cost
To maximize profit a monopolist will produce where
marginal revenue is equal to marginal cost
The additional utility that George receives from consuming one more slice of pizza is called
marginal utility.
In the United States, the average person mostly patronizes firms that operate in
monopolistically competitive markets
The larger the share of a good in a consumer's budget, holding everything else constant, the
more price elastic is a consumer's demand
To affect the market outcome, a price floor
must be set above the equilibrium price
If opportunity costs are constant, the production possibilities frontier would be graphed as:
negatively sloped straight line
An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a
noncooperative equilibrium
The relationship between the inputs employed by a firm and the maximum output that it can produce with those inputs is the firm's
production function.
A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss.
profit of $14,000
The World Trade Organization (WTO) promotes foreign trade and investment, or globalization. In recent years opposition to globalization has led to violent protests at meetings of the WTO. One reason for these anti-globalization protests is
protesters believe that free trade destroys the distinctive cultures of many countries.
In general, a "big ticket item" such as a house or new car will
tend to have a more elastic demand than a lower priced good
Absolute advantage is
the ability to produce more of a good or service than competitors when using the same amount of resources.
A narrow definition of monopoly is that a firm is a monopoly if it can ignore
the actions of all other firms
All of the following cost curves are U-shaped except one. Which curve is not U-shaped?
the average fixed cost curve
The total output produced by a firm divided by the quantity of workers employed by the firm is the definition of
the average product of labor.
The marginal product of labor is defined as
the change in output that a firm produces as a result of hiring one more worker.
Marginal revenue is
the change in total revenue divided by the change in the quantity of output
Of the following, which is the best example of good with a perfectly inelastic demand?
the demand for a college education by a student who has a full scholarship to an Ivy League
As gasoline prices increased throughout 2010 and into 2011, consumers began to explore alternatives to driving their cars and more people eventually ended up using public transportation. This exemplifies that for a specific product, the longer the time period involved,
the larger (in absolute value) the price elasticity of demand
A consumer is willing to purchase a product up to the point where
the marginal benefit is equal to the price of the product.
Sam Lewis owns a firm in New York City's garment district. If Sam keeps adding workers to use the same number of sewing machines, eventually the workplace will become so crowded that workers will get in each other's way. At this point
the marginal product of labor in Sam's business would be negative and his total output would decrease.
For a perfectly competitive firm, average revenue is equal to
the market price
The price elasticity of demand is equal to
the percentage change in quantity demanded divided by the percentage change in price.
If the demand for iPods is price elastic, then
the percentage change in quantity demanded is greater than the percentage change in price (in absolute value).
If the demand for cell phone service is inelastic, then
the percentage change in quantity demanded is less than the percentage change in price (in absolute value).
Total revenue is equal to
the price of a product multiplied by the number of units of the product sold.
Deadweight loss refers to
the reduction in economic surplus resulting from not being in competitive equilibrium.
In a graph that illustrates a perfectly competitive firm, marginal revenue is
the same as the firm's demand curve
Economists have shown that the burden of a tax is
the same whether the tax is collected from the buyer or the seller.
The minimum point on the average variable cost curve is called
the shutdown point
In a perfectly competitive industry, in the long-run
the typical firm earns zero profit
Each point on a demand curve shows
the willingness of consumers to purchase a product at different prices
Collusion occurs when
there is an agreement among firms to charge the same price or otherwise not to compete.
Workers in industries protected by tariffs and quotas are likely to support these trade restrictions because
they believe the restrictions will protect their jobs.
In a competitive market equilibrium the ________ equals the ________ of the last unit sold.
total cost; marginal cost
The satisfaction a person receives from consuming goods and services is called
utility
If the slope of a demand curve is equal to -0.1 then
we don't know whether the demand is elastic or inelastic.
The maximum price that a buyer is willing to pay for a good measures his
willingness to pay