Applied Microeconomics Final Exam Study Set

If you were not studying economics, you could be doing one of the following: sleeping in (which you value at $5), playing cards with your friends (which you value at $10), or working (you would have earned an extra $8). The opportunity cost of studying economics is therefore...

$10

Consider the market for wool sweaters. Which of the following will cause higher prices and a lower quantity of wool sweaters exchanged?

A disease significantly reduces the sheep population.

Consider the market for breakfast cereal. Which of the following will cause higher prices and a greater quantity of breakfast cereal exchanged?

A medical report shows the added health benefits of eating breakfast every morning.

The live band that plays nearby makes it difficult for patrons of a restaurant to hold a conversation. This is an example of...

A negative externality.

AT&T offers high-speed Internet service to new subscribers for $29.99 per month for the first six months and then raises the price to $49.99 per month. This offer is an example of...

A teaser strategy.

Zenon Corporation operates in a network industry and charges existing customers $9.99 per month for its services, but it offers new customers who sign a three-year contract six months of service for $1 per month. This new customer offer is known as...

A teaser strategy.

If an individual's primary objective is to maximize his or her salary, then which action would NOT be considered a rational decision?

Accepting a fun job that pays $40,000 a year over a boring job that pays $60,000 a year.

Which method can help in obtaining a welfare improvement if negative externalities exist? Regulation Appropriately Designed Taxes Assigning Property Rights Permitting Bargaining

All four could work.

Movies are typically only shown in theaters for months before they are released on online streaming sites at a lower price. This is an example of...

An intertemporal pricing strategy.

Consider the market for wool sweaters. Which of the following will cause lower prices and a greater quantity of wool sweaters exchanged?

Apparel manufactures develop a more efficient way of processing wool fabrics.

Other things being equal, a price-discriminating firm will charge less to the customers who...

Are the most elastic in their demand for product.

The "dilemma" in the Prisoner's Dilemma is that...

Both players would be better off by cooperating, but not cooperating is a dominant strategy.

It has been suggested that a way to save endangered species is to give hunting rights to people who live in the vicinity of that species. The idea behind this suggestion is that...

By giving people rights to profit from the animals, they have an incentive to ensure their survival.

Suppose the government could stimulate spending in one of the following expenditure categories. In which category would the spending increase contribute most to an expansion of the country's production possibilities frontier?

Capital Goods

If a consumer buys a set of headphones at the same time as she buys an MP3 player, these two products are MOST likely _____ goods.

Complementary

Consider the market for wool sweaters. Which of the following will cause higher prices and a greater quantity of wool sweaters exchanged?

Consumers expect the weather to be colder than normal during the next several weeks.

The reason monopolistic competitive firms have difficulty maintaining a profit in the long run is that...

Ease of entry into the market encourages new firms to enter and force down the price.

A decrease in price will cause an increase in demand. This is the law of demand.

False

A dominant strategy is a strategy that always makes both players as well-off collectively as possible

False

A firm should (at least temporarily) shut down its production facility if variable costs are less than revenues

False

A network good is one with which the benefit to the user rises if there is a small number of other users of the good

False

An increase in price will cause a decrease in demand. This is the law of demand.

False

If price exceeds marginal cost at a competitive firm's current level of output, then the firm can increase profit if it increases the price it charges

False

If price exceeds marginal cost at a competitive firm's current level of output, then the firm can increase profit if it increases the price it charges.

False

In a market economy, most economic decisions are made by central governments

False

In a market economy, most economic decisions are made by central governments.

False

Product differentiation gives a firm control over prices except when there is competition.

False

Public goods are characterized by the ability to exclude non-payers and the fact that consumption of the good does not preclude others from consuming it.

False

Suppose a new government report indicates that eating broccoli reduces the incidence of facial acne. We can expect that the equilibrium price of broccoli would increase and the equilibrium quantity of broccoli sold would decrease.

False

Suppose numerous research studies document the adverse health effects of prolonged social media use. As a result, we can expect that the stock price of social media companies will increase.

False

The demand for gasoline is rising. A possible cause is that commuters are switching from driving to public transportation.

False

The demand for paperback books is increasing. A possible cause is that more consumers are preferring digital over paperback books.

False

The free rider problem typically results in a production of output that is greater than the social optimal quantity.

False

"Production efficiency" is described as...

Goods and services that are produced using the fewest resources possible.

Which event would be an example of a common property resource market failure?

Highway Congestion

Which statement is TRUE regarding the Coase theorem

If transactions costs are small, the outcome is efficient regardless of how property rights are distributed.

Which of these is a policy idea that the government could use to correct a negative externality?

Imposing a fee on waste from the production of goods that create negative externailities.

A country operating inside of its production possibilities frontier (PPF) is operating...

Inefficiently, but in an area that can be attained.

Spraying for mosquito control in a local community is an example of a public good because...

It is nonrival in consumption and nonexcludable.

Which statement describes a public good?

It is nonrival in consumption and nonexcludable.

Fishing in a community lake is an example of using a common property resource because...

It is rival in consumption and nonexcludable.

Which statement describes a good that is characterized as a tragedy of the commons?

It is rival in consumption and nonexcludable.

Which of these is an example of consumers creating a negative externality?

Litter is found in an area around a fast-food restaurant.

Consider the market for new cars. Which of the following will cause lower prices and a greater quantity of new cars exchanged?

New technology improves the production efficiency of automobile manufacturers.

Target executives believe that if they raise prices, then customers will switch to shopping at Walmart across the street. However, if they decrease their prices, then Walmart will respond by decreasing their own prices, with no customers switching from Walmart to Target. This scenario implies that...

Prices charged by both retailers will be relatively stable.

The reason economists often consider monopoly socially undesirable is because the monopolist...

Produces less than the socially efficient amount.

Which characteristic does monopolistic competition NOT have in common with perfect competition?

Products of individual firms are different.

Suppose the government sets the price for water and the market for water is always experiencing shortages. One can infer that...

The government has established a price ceiling for water.

Home football games at your college are free for students and most of the students like to go to the game. What is the non-monetary cost for you to go to the game?

The two hours you waited in line to pick up a ticket.

Tim woke up this morning with a stomachache and decided to skip class in order to get more rest. What is the opportunity cost of Tim's decision to sleep in?

The value of attending the class he decided to miss.

Consider the market for new cars. Which of the following will cause lower prices and a lower quantity of new cars exchanged?

There is a significant increase in the perceived quality of used cares by potential car buyers.

Consider the market for breakfast cereal. Which of the following will cause lower prices and a greater quantity of breakfast cereal exchanged?

There is an increase in the number of firms selling breakfast cereal.

A firm seeking to maximize profits will increase the amount of output it produces when marginal revenue is greater than marginal cost.

This is true for all firms regardless of market structure.

A country's comparative advantage is determined by an assessment of its opportunity costs of production relative to the opportunity costs of other countries.

True

A customer leaving a network imposes a cost on users of the network.

True

A dominant strategy is an action that is the same best response regardless of what another player's actions are.

True

A fire that destroys a food processing facility will likely result in shortages, thus causing an increase in the price of those food products.

True

A positive externality is an external benefit that accrues to others outside of the market, while a negative externality is an external cost that accrues to others outside of the market.

True

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a model.

True

An important lesson from the prisoner's dilemma game is that the interests of individuals will not always align with the collective interests of people.

True

An increase in consumer income will increase the demand for products and services that are income normal.

True

At an all-you-can eat buffet, a person will stop eating when marginal utility is equal to zero.

True

If a market generates a negative externality, then an appropriately designed tax can move the market toward a more efficient outcome.

True

If the United States has a comparative advantage over France in producing corn, the opportunity cost of the United States producing corn is lower than France's opportunity cost of producing corn.

True

If the government sets a price ceiling below the equilibrium market price, then we can expect that there will be shortages of the good (i.e., quantity demanded will exceed quantity supplied).

True

In contrast to casual users, core users are often willing to pay relatively high prices for network goods.

True

In perfectly competitive markets, no firm has the ability to affect the market price.

True

In the long run, a typical firm in a monopolistically competitive industry will likely earn little to no economic profit.

True

One characteristic of oligopoly is that firms in an industry will usually have to consider the reactions of competitors when they formulate strategy.

True

Private goods are characterized by the ability to exclude non-payers and the fact that consumption of the good precludes others from consuming it.

True

Product differentiation gives a firm control over prices.

True

Providing government subsidies for higher education could be both economically efficient and socially equitable if higher education results in positive externalities.

True

Suppose medical studies reveal that long distance running reduces the chance of having a heart attack. We can expect that the equilibrium price of running shoes would increase and the equilibrium quantity of running shoes sold would also increase.

True

Suppose medical studies reveal that long distance running reduces the chance of having a heart attack. We can expect that the equilibrium price of running shoes would increase and the equilibrium quantity of running shoes sold would increase.

True

Suppose the price of raw materials and other inputs used to produce computers increases. We should expect that the equilibrium market price of computers will increase and the quantity of computers sold will decrease.

True

The prisoners' dilemma refers to a situation in which players face strong incentives not to cooperate with each other.

True

The social cost curve lies above the private supply curve for the producer in cases of negative externalities.

True

Universities are engaging in price discrimination when they charge different levels of tuition to instate and out-state students.

True

When demand is downward sloping, consumers who buy a good at the market equilibrium price will receive consumer surplus from the purchase of the good.

True

When the price elasticity of demand for a product is inelastic, that product is likely to have few close substitutes.

True

Opportunity costs exist because...

Using resources for one activity means that their use elsewhere must be given up.