Micro Economics Final Exam Study Guide
If a technological advance increases a firm's labor productivity, we would expect its:
average total cost curve to fall
For most producing firms:
average total costs decline as output is carried to a certain level, and then begin to rise.
When average fixed costs are falling:
average variable cost may be either rising or falling
Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?
consumer and producer surplus will be maximized
The basic difference between consumer goods and capital goods is that
consumer goods satisfy wants directly while capital goods satisfy wants indirectly.
Kara was out jogging and despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:
decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.
(Last Word) A market for human organs (rather than the current volunteer-donor system) would be expected to:
eliminate the shortage of organs
Marginal cost:
equals both average variable cost and average total cost at their respective minimums.
Economic profits are calculated by subtracting:
explicit and implicit costs from total revenue.
Which of the following describes a purely competitive labor market?
Wage Rate = MRC
Which of the following is correct?
When MP is rising MC is falling, and when MP is falling MC is rising.
Refer to the above data. If the price in this market was $4:
farmers would not be able to sell all their wheat.
The fact that most medical care purchases are financed through insurance:
increases the amount of health care consumed.
Refer to the above diagram. Minimum efficient scale:
is achieved at Q1
One reason that the quantity demanded of a good increases when its price falls is that the:
lower price increases the real incomes of buyers, enabling them to buy more.
Critics of the minimum wage argue that as an antipoverty device it is "poorly targeted." By this they mean that:
many who benefit from the minimum wage are not poor.
A firm will find it profitable to hire workers up to the point at which their:
marginal resource cost is equal to their MRP
Curve (2) in the above diagram is a purely competitive firm's:
marginal revenue curve
Assuming a competitive resource market, a firm is hiring resources in the profit-maximizing amounts when the:
marginal revenue product of each resource is equal to its price
If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the:
marginal revenue product of the second worker is $20.
(Last Word) The M&M experiment demonstrated that:
marginal utility diminishes less rapidly in the presence of variety.
In the above diagram curves 1, 2, and 3 represent the:
marginal, average, and total product curves respectively.
(Consider This) Free products offered by firms:
may or may not be free to individuals, but are never free to society.
Which of the following is not considered by economists to be an economic resource?
money
Which of the following would not be classified as an economic resource by economists?
money in a business checking account
In drawing a budget line it is assumed that:
money income is fixed
Assume that the coefficient of elasticity of product demand is 0.5 in industry A and is 3.2 in industry B. Other things equal, labor demand will be:
more elastic in industry B than in A
Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy:
more of X and less of Y.
Refer to the above diagram. An increase in quantity supplied is depicted by a:
move from point y to point x
(Consider This) Refer to the above diagram. The U.S. response to the events of September 11, 2001, is illustrated by the:
move from x to y on production possibilities curve AB.
Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is:
negative
Assume that a 3 percent increase in income in the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is:
negative and therefore X is an inferior good.
Most economists contend that:
noncash transfers are less efficient than cash transfers.
Pure monopolists may obtain economic profits in the long run because:
of barriers to entry
Occupational licensing:
often restricts occupational entry and raises the incomes of licensees.
One of the potential negative side-effects of pay in the form of sales commissions is:
often restricts occupational entry and raises the incomes of licensees.
An industry producing a homogeneous product whose four-firm concentration ratio is 76 percent is an example of:
oligopoly
A firm can sell more or less output at a constant price. Demand is thus: Correct!
perfect elastic
A demand curve which is parallel to the vertical axis is:
perfectly inelsetics
"Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity." This statement is:
positive and correct
When total product is increasing at an increasing rate, marginal product is:
positive and increasing.
Marginal utility can be:
positive, negative, or zero.
Refer to the above diagram. A government price support program to aid farmers is best illustrated by:
price c
Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the:
price of C is $4 and the price of D is $2.
The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is:
price.
A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is:
producing less output than allocative efficiency requires
If the supply and demand curves for a product both decrease, then equilibrium:
quantity must decline, but equilibrium price may rise, fall, or remain unchanged
The process by which economists test hypotheses against facts to develop theories, principles, and models is called:
the scientific method
Refer to the above diagram. At quantity Q2:
the sum of consumer and producer surplus is maximized
"Essential" water is cheaper than "nonessential" diamonds because:
the supply of water is great relative to demand and the supply of diamonds is small relative to demand.
Wage differentials may result from all the following except:
the tendency of qualified workers to move from lower pay jobs to higher pay jobs
Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then:
there is no tendency for the firm's industry to expand or contract
When the economist says that economic wants are insatiable, this means that:
these wants are virtually unlimited and therefore incapable of complete satisfaction.
Private-sector strikes and lockouts typically end because:
they are costly in terms of lost profits and lost wage income.
Curve (4) in the above diagram is a purely competitive firm's
total cost curve
A point inside a production possibilities curve best illustrates:
unemployment.
Economists:
use both the economic perspective and the scientific method.
Normative statements are concerned with:
what ought to be
The above diagram suggests that:
when marginal product lies above average product, average product is rising
A product market is in equilibrium:
where the demand and supply curves intersect.
If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue:
will be less than $35.
Suppose there is a decline in the demand for the product labor is producing. Furthermore, the price of capital, which is complementary to labor, increases. Thus the demand for labor:
will decrease
Suppose the MRP of a firm's twelfth worker is $22 and the worker's marginal wage cost is $16. We can say with certainty that the firm:
will find it profitable to hire more workers
The labor demand curve of a firm:
will shift to the left if the price of the product the labor is producing falls
A monopsonist's wage cost in hiring an additional worker is the:
worker's wage rate plus the wage increases paid to all workers already employed
Where total utility is at a maximum, marginal utility is:
zero
Refer to the above data. If the firm decided to increase its output from 6 to 7 units, its total costs would rise by:
$120.00.
Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:
$200,000 and its economic profits were zero
Refer to the above data. The total variable cost of producing 5 units is:
$37
In which price range of the accompanying demand schedule is demand elastic?
$4-$3
Which of the following statements is correct?
Demand is more elastic when a large number of substitute goods are available
Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should be increased on beer because college students drink too much." We can conclude that:
Holly's statement is normative, but Ben's is positive.
Refer to the above diagram, where variable inputs of labor are being added to a constant amount of property resources. Average variable cost will be at a minimum when the firm is hiring:
Q2 workers
Refer to the above information. Over the $9-$7 price range, demand is:
elastic
If the demand curve for product B shifts to the right as the price of product A declines, then:
A and B are complementary goods.
Refer to the above data. The value for Z is:
-5
Refer to the above diagram and assume that price declines from $10 to $2. The coefficient of price elasticity of demand (midpoints formula) relating to this change in price is about:
.25 and demand is inelastic
Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:
1.37
Refer to the above data. If the price of X decreases to $2, then the utility-maximizing combination of the two products is:
4 of X and 5 of Y
(Last Word) DeBeers Consolidated Mines markets about:
55 percent of the world's rough-cut diamonds
The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by
7 percent and quantity supplied rises by 5 percent.
Refer to the above data. What level of total utility will the utility-maximizing consumer realize?
96
Which of the above diagrams illustrate(s) the effect of a decrease in incomes on the market for secondhand clothing
A only
The vertical distance between a firm's ATC and AVC curves represents:
AFC, which decreases as output increases
Assuming competitive markets with typical supply and demand curves, which of the following statements is correct?
An increase in demand with no change in supply will result in an increase in sales.
How did Apple overcome consumers' diminishing marginal utility for iPods?
Apple introduced new features to entice previous buyers to purchase new models
In comparing the changes in TC and TVC associated with an additional unit of output, we find that:
Both are equal to MC
Refer to the above diagram. Technological advance in producing both capital goods and consumer goods is shown by the shift of the production possibilities curve from AB to:
CD.
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.
Which of the following describes the equilibrium condition in a purely competitive labor market?
MRP = Wage Rate
A firm is hiring resources X, Y, and Z in the profit-maximizing amounts when:
MRPx/Px equals MRPy/Py equals MRPz/Pz equals 1.
Which of the following has been a significant factor in iPods replacing portable CD players?
Most consumers perceive iPod portability and storage to be superior to CD players.
Collective bargaining occurs under a framework of rules established in the:
Nation Labor Relations act
Allocative efficiency is achieved when the production of a good occurs where:
P = MC
Which of the following conditions is true for a purely competitive firm in long-run equilibrium?
P = MC = minimum ATC
Refer to the above diagram. A government-set price floor is best illustrated by:
Price C
Which of the following statements is correct?
The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.
If the nominal wage rises by 4 percent, and the price level rises by 7 percent, the real wage will:
The real wage fall by 3 percent
When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls, and fewer Adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?
The substitute effect
Increasing marginal cost of production explains:
Why the supply curve is upsloping
Suppose a firm is in a range of production where it is experiencing economies of scale. Knowing this, we can predict that:
a 10 percent increase in all inputs will increase output by more than 10 percent.
In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by:
a change in buyer tastes
A supply curve that is a vertical straight line indicates that:
a change in price will have no effect on the quantity supplied.
Other things equal, which of the following would shift an economy's production possibilities curve to the left?
a law requiring mandatory retirement from the labor force at age 55
Refer to the above diagram. A price of $20 in this market will result in:
a shortage of 100 units.
Refer to the above information. Over the $13-$11 price range, demand is:
elastic
The majority of union members in the United States belong to unions that are:
affiliated with the AFL-CIO.
In the above diagram it is assumed that:
all cost variables
Marginal resource cost refers to the:
amount by which a firm's total resource cost increases as the result of hiring one more unit of the resource.
Marginal revenue product measures the:
amount by which the extra production of one more worker increases a firm's total revenue.
Refer to the above diagram. Line (1) reflects the long-run supply curve for:
an increasing-cost industry
(Last Word) ATMs and human bank tellers:
are substitute resources
Monopolistic competition resembles pure competition because:
barriers to entry are either weak or nonexistent.
(Last Word) The "after this, therefore because of this" fallacy states that:
because event A precedes event B, A is necessarily the cause of B.
A perfectly inelastic demand schedule:
can be represented by a line parallel to the vertical axis
Refer to the above data. The profit-maximizing level of output for this firm:
cannot be determined from the information given
Refer to the above diagram. The profit-maximizing level of output for this firm:
cannot be determined from the information given
A manufacturer using both capital and labor decides to use more labor and less capital because of an increase in the price of capital. This is likely the result of
capital and labor being substitute imputs
If the demand for product X is inelastic, a 4 percent increase in the price of X will:
decrease the quantity of X demanded by less than 4 percent.
Diminishing marginal utility explains why:
demand curves are downsloping
The law of diminishing marginal utility explains why:
demand curves slope downward
Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market:
demand has increased and equilibrium price has decreased.
Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week:
demand will become less price elastic
The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.
direct,inverse
A change in the price of an input will usually:
do all of these
The marginal productivity theory of income distribution suggests that:
each individual should receive income based on his contribution to total output.
If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that:
economies of scale are being realized
The idea of efficiency wages is that:
firms might get greater work effort by paying above-equilibrium wage rates
(Last Word) Patents give pharmaceutical companies exclusive rights to produce and sell the patented medications:
for a maximum of 20 years.
Refer to above data. Marginal utility becomes negative beginning with the:
fourth unit
In which of the following U.S. industries is the rate of unionization the highest?
government
A perfectly inelastic demand curve:
graphs as a line parallel to the vertical axis.
A purely monopolistic industry:
has a downward sloping demand curve
Real wages in the United States in the long run:
have increased at about the same rate as increases in output per worker
A firm hiring labor in a perfectly competitive labor market faces a:
horizontal labor supply curve and downward sloping labor demand curve
A constant-cost industry is one in which:
if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth
You should decide to go to a movie:
if the marginal benefit of the movie exceeds its marginal cost
Assuming conventional supply and demand curves, changes in the determinants of supply and demand will:
in all likelihood alter both equilibrium price and quantity.
Refer to the above data. The price elasticity of demand is unity:
in the $4-$3 price range only.
Refer to the above data. The price elasticity of demand is relatively elastic:
in the $6-$4 price range
Refer to the above. An increase in income, if X is a normal good, will:
increase D, increase P, and increase Q.
(Last Word) The entry of generic drugs into a previously monopolized pharmaceutical market will:
increase efficiency by increasing consumer surplus
Suppose capital and labor are used in fixed proportions so that each machine requires only one worker. If a decline in the price of capital occurs, then the demand for labor will:
increase solely because of the output effect.
Construction workers frequently sponsor political lobbying in support of greater public spending on highways and public buildings. One reason they do this is to:
increase the demand of contraction workers
According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts":
increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying.
An unusually large crop of coffee beans might:
increase the supply of coffee.
Refer to the above diagram. The decline in price from P1to P2will:
increase total revenue by D - A
If the nominal wages of carpenters rose by 5 percent in 2008 and the price level increased by 3 percent, then the real wages of carpenters:
increased by 2 percent.
The MRP curve for labor:
is downsloping and shows the relationship between wage rates and the quantity of labor demanded.
Refer to the above data. Creamy Crisp:
is earning an economic profit.
Any combination of goods lying outside of the budget line:
is unattainable, given the consumer's income.
Suppose that an industry's long-run supply curve is downsloping. This suggests that
it is a decreasing-cost industry
According to some supporters of the minimum wage, it has very small or even nonexistent negative employment effects because:
it reduces turnover among minimum wage workers, prompts employers to use them more efficiently, and thus raises their average productivity.
If a pure monopolist is producing more output than the MR = MC output:
it will be in the interest of the firm, but not necessarily of society, to reduce output
If government set a maximum price of $45 in the above market:
it would create neither a shortage no surplus
If a product is in surplus supply, its price:
its above the equilibrium level
If a pure monopolist is producing at that output where P = ATC, then:
its economic profits will be zero
Assume the price of capital doubles and, as a result, firms make no change in the relative quantities of capital and labor they employ. This implies that:
labor is not readily substitutable for capital
The upward slope of the supply curve reflects the:
law of supply
Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5, both are running out of beads to sell (they can't keep up with the quantity demanded at that price), then we would expect both Camille's and Julia's to:
raise their price and increase their quantity supplied
A consumer who has a limited budget will maximize utility or satisfaction when the:
ratios of the marginal utility of each product purchased divided by its price are equal.
(Last Word) The rapid spread of ATMs has:
reduced the demand for bank tellers
Many economists are critical of the minimum wage because they believe that it:
reduces the number of available job opportunities
If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by:
reducing output and raising price
Other things the same, if a price change causes total revenue to change in the opposite direction, demand is:
relatively elastic.
(Consider This) Ticket scalping refers to:
reselling a ticket at a price above its original purchase price
The elasticity of resource demand measures the:
responsiveness of producers to changes in resource prices
An effective ceiling price will:
result in a product shortage
If the nominal wage rises by 6 percent, and the price level falls by 2 percent, the real wage will:
rise by 8 percent
Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and that potatoes are a consumer substitute for bread, we would expect the price of wheat to:
rise, the supply of bread to decrease, and the demand for potatoes to increase.
A product has utility if it:
satisfy costumers wants
(Consider This) Refer to the above diagram. The direct economic impact of the destruction and loss of lives caused by the terrorist attacks of September 11, 2001 is illustrated by the:
shift of the production possibilities curve from CD to AB
Refer to the above diagram. An improvement in technology will:
shift the production possibilities curve from PP1 to PP2
Other things equal, an increase in a consumer's money income:
shifts her budget line rightward because she can now purchase more of both products.
If total revenue is less than total variable costs at the MR = MC output, a purely competitive firm should:
shut down
Refer to the above diagram for athletic shoes. If the current output of shoes is Q3, then:
society should produce fewer shoes to achieve the optimal allocation of resources.
Refer to the above diagram for athletic shoes. If the current output of shoes is Q3, then:
society would consider additional units of shoes to be less valuable than alternative products.
(Consider This) The prisoner's dilemma reveals that:
sometimes when individuals act independently in their own self-interest, everyone is worse off than if they had cooperated.
A country can achieve some combination of goods outside its production possibilities curve by:
specializing and engaging in international trade.
Suppose that in 2007 Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statement
suggest that the demand for Mustangs increased between 2007 and 2008
Total utility may be determined by:
summing the marginal utilities of each unit consumed.
An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the:
supply curve for cigarettes leftward
Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then:
supply has decreased and equilibrium quantity has decreased
The long run is characterized by:
the ability of the firm to change its plant size.
The demand for airline pilots results from the demand for air travel. This fact is an example of:
the derived demand for labor.
The income and substitution effects account for:
the downward sloping demand curve.
If someone produced too much of a good, this would suggest that:
the good was produced to the point where its marginal cost exceeded its marginal benefit.
When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes:
the income effect.
If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes:
the law of diminishing returns
Suppose an increase in product demand occurs in a decreasing-cost industry. As a result:
the new long-run equilibrium price will be lower than the original long-run equilibrium price.
The diamond-water paradox occurs because:
the price of a product is related to its marginal utility, not its total utility
A change in the slope of a budget line is solely the result of a change in:
the price of one good relative to the other.
Some agricultural sub-Saharan nations of Africa have overfarmed and overgrazed their land to the extent that significant portions of it have turned into desert. This suggests that:
the production possibilities curves of such nations have shifted inward
At the point where the demand and supply curves for a product intersect:
the quantity that consumers want to purchase and the amount producers choose to sell are the same