Microeconomics Final Exam True/False

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A firm's short-run average total cost curve is parallel to its short-run average variable cost curve

False

A tariff makes domestic consumers better off.

False

An explicit cost is a nonmonetary opportunity cost.

False

As output increases average variable cost becomes smaller and smaller

False

Being a price-taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

False

Economists reason that it is optimal to choose a point where the marginal benefit is greater than the marginal cost.

False

Farmers can plant either corn or soybeans in their fields. An increase in the price of soybeans would cause the supply of soybeans to increase.

False

For a perfectly competitive firm, at profit maximization, total revenue is maximized.

False

If Blake can pick more cherries in one hour than Cody, then Blake has a comparative advantage in cherry picking.

False

If Joey Kobayashi experiences diminishing marginal utility from eating hot dogs then the marginal utility from the next hot dog Joey eats will be negative.

False

If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania cannot take place until Albanian workers become more productive.

False

If Paul decides to buy a $60 ticket to a Cirque du Soleil show rather than a $45 ticket for a Blue Man Group performance, we can conclude that the marginal utility per dollar spent on Cirque du Soleil is lower than the marginal utility per dollar spent on Blue Man Group.

False

If a firm's long-run average total curve shows that it can produce 5,000 DVDs at an average cost of $2.00 and 15,000 DVDs at an average cost of $1.50, this is evidence of diseconomies of scale.

False

If average total cost is falling marginal cost must also be falling.

False

If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded.

False

If the demand for a product is elastic, the quantity demanded changes by a smaller percentage than the percentage change in price.

False

If the demand for a steak is unit-elastic, then the percentage change in quantity demanded is 1 percent greater than the percentage change in price.

False

If the marginal utility Ida Mae receives from eating chicken wings is negative then her total utility from eating chicken wings must be negative as well.

False

If the marginal utility of apples is diminishing and is a positive amount, consuming one more apple will cause total utility to decrease.

False

If the price of pork rinds falls, the substitution effect due to the price change will cause a decrease in the quantity of pork rinds demanded.

False

If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities.

False

If, in a competitive market, marginal benefit is greater than marginal cost, the quantity sold is greater than the equilibrium quantity.

False

In general, if a product has few substitutes it will have an elastic demand.

False

In the long run, total cost = fixed cost + variable cost.

False

In the short run, a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.

False

Individuals who have never been the best at doing anything cannot have a comparative advantage in producing any product.

False

Issuing marketable emission allowance permits to polluting firms will result in those firms polluting more than is socially desirable.

False

It is not possible to have a comparative advantage in producing a good or service without having an absolute advantage.

False

Marginal cost will equal average total cost when marginal cost is at its lowest point.

False

Perfectly competitive industries tend to produce low-priced, low-technology products.

False

Productive efficiency is achieved when firms produce the goods and services that consumers value most.

False

Specializing in the production of a good or service in which one has a comparative advantage enables a country to produce a combination of goods that lies outside its own production possibilities frontier.

False

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. The more elastic the supply curve, the greater the price increase.

False

The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems.

False

The absolute value of the price elasticity of demand for telescopes is 1.5. Therefore, telescopes can be classified as a luxury.

False

The basis for trade is absolute advantage, not comparative advantage.

False

The larger the share of a good in a consumer's budget, holding everything else constant, the more price inelastic is a consumer's demand.

False

The market demand curve in perfect competition is a horizontal line; the firm's demand curve is downwardsloping.

False

The result of a price increase for an inferior good is that both the substitution effect and the income effect cause the consumer to buy less of the good.

False

The social cost of a good or service is the cost borne by the producer.

False

The substitution effect of a price change refers to the shift of a demand curve when the price of a substitute good changes.

False

The supply curve of a perfectly competitive firm in the short run is the firm's average variable cost curve.

False

To maximize utility consumers should buy goods and services to the point where the marginal utility of each item consumed is equal.

False

Total utility is maximized in the consumption of two goods by equating the marginal utility for each good consumed.

False

When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalize the externality.

False

A quota is a numerical limit on the quantity of a good that can be imported.

True

A.C. Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality

True

Along a downward sloping, linear demand curve, total revenue is the greatest where demand is unitelastic.

True

An external benefit is created when you pursue a college education.

True

An externality is an example of a market failure.

True

Assume that the personal computer industry is perfectly competitive. The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

True

Autarky is a situation in which a country does not trade with other countries.

True

During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide on the number of slices of pizza and cups of Coca-Cola he would consume. Peter explained "To maximize his utility this consumer must equate the marginal utility per dollar for pizza and Coca-Cola."

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.

True

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which the sum of consumer surplus and producer surplus is at a maximum.

True

Economic surplus is maximized in a competitive market when marginal benefit equals marginal cost.

True

For a perfectly competitive firm, at the profit-maximizing output average revenue equals marginal cost.

True

Gertrude Stork's Chocolate Shoppe normally employs 4 workers. When the Chocolate Shoppe hired a 5th worker the Shoppe's total output decreased. Therefore, the marginal product of the 5th worker is negative.

True

Holding everything else constant, a decrease in the price of GPS systems will result in an increase in the quantity of GPS systems demanded.

True

If a country produces only two goods, then it is not possible to have a comparative advantage in the production of both those goods.

True

If a perfectly competitive firm raises the price it charges to consumers, the most likely outcome is that the firm will not sell any output.

True

If at a price of $10, a vendor sells 5 units of a product and at a price of $8, 6 units are sold, then, using the midpoint formula, the demand for this good is inelastic.

True

If it costs Sinclair $300 to produce 3 suede jackets and $420 to produce 4 suede jackets, then $120 is the marginal cost of producing the 4th suede jacket.

True

If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then price exceeds average total cost.

True

If the demand for a product increases and the supply of the same product decreases, the equilibrium price will increase.

True

If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then the price elasticity of demand for teapots is greater than 1 in absolute value.

True

If the quantity supplied of walkie-talkies increases by 5 percent when prices increase by 12 percent, then the supply of walkie-talkies is inelastic.

True

If the slope of a demand curve is equal to -0.1 then we don't know whether the demand is elastic or inelastic.

True

In Singapore, after the purchase of a new car, a buyer must pay the government $5,000 as tax. The imposition of the tax on buyers will shift the demand curve to the left by $5,000 in a graph.

True

In a two-good, two country world, if one country has an absolute advantage in the production of both goods, it can still benefit by trading with the other country.

True

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.

True

In making decisions about what to consume, a person's goal is to allocate her limited income among all the products she wishes to buy so that she receives the highest total utility

True

In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes agree to voluntary export restraints.

True

In the short run, because of specialization and the division of labor, as more workers are hired output will first increase at an increasing rate, then output will increase at a decreasing rate.

True

In the short run, if average product is at its maximum, then average variable cost is at its minimum.

True

Jill believes that the price elasticity of demand for her economics textbook is relatively inelastic. She argues "I was told I had to purchase a book written by Hubbard and O'Brien as required by my instructor. If I wanted to buy a mystery novel I would have many authors to choose from. Therefore, the demand for mystery novels is more elastic than the demand for my textbook." Is Jill correct?

True

Most food products have low income- and price-elasticities of demand.

True

One of the main sources of comparative advantage is natural resources.

True

One reason a country does not specialize completely in production is that production of most goods involves increasing opportunity costs.

True

Opera Estate Girls' School is increasing its tuition. If the school believes that raising tuition will increase revenue, it is assuming that the demand for attending the school is perfectly elastic.

True

Protectionism is the use of quotas/tariffs to protect domestic firms from foreign competition.

True

Some workers have realized that economic and financial uncertainty have made the prospect of retiring more risky, and therefore decide not to retire early. By using all available information as they act to achieve their goals, these workers are exemplifying the economic idea that people are rational.

True

Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video. It must be true that the marginal utility per dollar spent on books exceeds that of video rentals.

True

Suppose a decrease in the supply of paper results in an increase in revenue. This indicates that the demand for paper is inelastic.

True

The LRATC shows the lowest cost at which a firm is able to produce a given level of output when no inputs are fixed.

True

The United States would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas.

True

The division of labor and specialization explain why the marginal product of labor rises as a firm hires its first units of labor.

True

The income effect of a price change results in a movement along the demand curve due to a change in purchasing power brought about by the price change.

True

The marginal cost curve has a U shape because initially, the marginal product of labor rises, then falls.

True

The substitution effect of a price change is the change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

True

When a firm experiences a positive technological change, the firm is able to produce more output using the same inputs, or the same output using fewer inputs.

True

When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even.

True

When negative externalities exist, the competitive market supply curve does not include all of the costs borne by members of society.

True

When products that create positive externalities are produced, at the market equilibrium output, the social benefit generated by consuming the product exceeds the private benefit.

True

When there is a positive externality, the social benefit received by consumers is greater than the private benefit.

True

Stan owns a software design business. He obtained a bank loan to buy computer equipment for his business. He pays $1,000 per month for interest on the loan. He has 10 employees, each of whom is paid $4,000 per month. Because his business has been successful, next month he will increase employee wages to $5,000. If the revenue from his business remains at its current level, Stan is considering an addition to his office. Are the following statements regarding Stan's business true or false? A) The payments Stan makes to his employees are variable costs and explicit costs. B) The monthly payment Stan makes for his bank loan is an implicit cost. C) The monthly payment Stan makes for his bank loan is a fixed cost. D) The time and effort Stan spends on his software design business is an implicit cost.

True False True True


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