MicroEcon Midterm Q&A

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Microeconomics, The Master's College, Dr. Hill, Spring 2012, does not include questions from quizzes 1-4

T/F: The budget line shows all the combinations of two products which the consumer can buy, given money income and product prices.

True

T/F: If the supply of a product decreases and demand increases, the equilibrium price and quantity will both definitely increase.

False

MC: Which of the following instance are correct?

Total utility is the cumulation or summation of marginal utility

T/F: If two goods are substitutes, a decline in the price of one will cause a decrease in the demand for the other.

True

T/F: A market system is characterized by the private ownership of resources and the use of markets and prices to coordinate economic activity.

True

T/F: If the car-makers are required to install gadgets to improve the cleanliness of car-exhaust fumes, we would expect the equilibrium quantity in the care market to decrease.

True

T/F: The types of quantities of public goods produced are ultimately determined through the political process.

True

MC: Implicit and explicit costs are different int that:

the former refer to non-expenditure costs and the latter to monetary payments

T/F: An increase in consumer incomes will cause a decrease in the demand for an inferior good.

True

MC: If the price-elasticity coefficient for a good is .75, the demand for that good is described as:

Inelastic

T/F: In the short run, fixed costs are irrelevant in determining a firm's optimal level of output.

True

T/F: After all long-run adjustments have been completed, a firm in a competitive industry will produce that level of output where average total cost is at a minimum.

True

T/F: Profit, but not price, is the primary success indicator in a centrally planned economy.

False

MC: 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

T/F: The law of demand states that if price increases, other things being equal, the demand for the product will decrease.

True

MC: Which of the following distinguishes the short run from the long run in pure competition?

Firms can enter and exit the market in the long run, but not in the short run.

MC: Price is constant or given to the individual firm selling in a purely competitive market because:

each seller supplies a negligible fraction of total supply

T/F: If a market is allocatively efficient, it means that at the equilibrium price, the maximum price consumers are willing to pay is equal to the minimum acceptable price for producers.

True

MC: After eating four slices of pizza, you are offered a fifth slice. You turn down the slice. Your refusal indicates that the:

Marginal utility is positive for the fourth slice and negative for the fifth slice

MC: The price elasticity of demand is a measure of the:

Responsivenesss of quantity demanded in price

T/F: Property rights have a positive effect in a market economy because they encourage owners to maintain their property.

True

T/F: The economy of the United States can best be described as laissez-faire capitalism

False

T/F: The demand curve for a purely competitive industry is perfectly elastic, but the demand curves faced by individual firms in such an industry are downsloping.

False

T/F: Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces an efficient allocation of economic resources.

True

T/F: If people tried to produce as much of what they need on their own, then this would lead to a more efficient use of the economy's resources.

False

T/F: The short run is a period of time during which all costs are fixed costs.

False

MC: Which of the following is not a characteristic of pure competition?

price strategies by firms

MC: If many people in a community get flu shots, the whole community benefits including those that did not get flu shots. This is one illustration of

Demand-side market failures

MC: The demand schedule or curve confronted by the individual purely competitive firm is:

perfectly elastic

MC: Which of the following situations is NOT an example of market failure?

Ben cannot afford to buy a high-end Mercedes Benz luxury car

T/F: An effective antipollution policy from the economic perspective requires that all pollution be eliminated and banned.

False

MC: The primary force encouraging the new entry of new firms into a purely competitive industry is:

economic profits earned by firms already in the industry

T/F: The government receives all of the benefits associated with the production of a public good.

False

MC: A purely competitive firm's short-run supply curve is:

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve

MC: Accounting Profits are typically:

greater than economic profits because the former do not take implicit costs into account

T/F: Variable costs are costs that change directly with output.

True

MC: The utility of a specific product:

Varies from person to person using the product

MC: Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that:

price is greater than marginal cost

T/F: In a purely competitive industry competition centers more on advertising and sales promotion than on price.

False

MC: Economists would describe the U.S. automobile industry as:

an oligopoly

MC: Which of the following statements is correct?

Economic profits include firms to enter an industry; losses encourage firms to leave

MC: Creative destruction is:

The process by which new firms and new products replace existing dominant firms and products

T/F: In the short run a competitive firm will always choose to shut down if product price is less than the lowest attainable average total cost.

False

T/F: Producer surplus is the difference betweeen the market price a producer receives for a product and the minimum price producers are wiling to accept for a product.

True

T/F: A firm's economic profit is usually higher than its accounting profit.

False

T/F: Surplus indicates that the quantity demanded is greater than the quantity supplied at that price.

False

T/F: Although individual purely competitive firms can influence the price of their product, these firms as a group cannot influence market price.

False

T/F: If there are many firms in an industry, then it must be a purely competitive market.

False

MC: Which of the following is an example of creative destruction?

Automobile production causes the wagon industry to shut down

T/F: Economics in the social science concerned with the best use of scarce resources to achieve maximum satisfaction of economic wants.

True

T/F: At zero units of output a firm's variable costs are zero.

True

MC: We would expect an industry to expand if firms in that industry are:

Earning economic profits

T/F: The concept of consumer sovereignty refers to the situation where consumers have the right to vote for the board of directors of large corporations.

False

MC: What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

All are opportunity costs

MC: If the long-run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources:

rise as the industry expands

MC: Which of the following industries most closely approximates pure competition?

agriculture

T/F: In the market system, prices tend to guide resources from less important to more important uses as the market system accommodates change.

True

T/F: The four factors of production are land, labor, capital, and government services.

False

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