Microeconomics Final Exam

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Dr. McKizzie's Fall 2012 Study Questions

A market:

is an institution that brings together buyers and sellers.

Graphically, the market demand curve is:

the horizontal sum of individual demand curves.

The demand curve shows the relationship between:

price and quantity demanded.

When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower. This statement describes:

the substitution effect.

A decrease in demand is depicted by a:

shift from D2 to D1. insert picture of graph from study guide

A decrease in quantity demanded (as distinct from a decrease in demand) is depicted by a:

move from point y to point x. insert picture of graph from study guide

Refer to the above data. Equilibrium price will be:

$2. insert picture of chart from study guide

Refer to the above data. If the price in this market was $4:

farmers would not be able to sell all their wheat. insert picture of chart from study guide

Refer to the above data. If price was initially $4 and free to fluctuate, we would expect:

the quantity of wheat supplied to decline as a result of the subsequent price change. insert picture of chart from study guide

Refer to the above diagram. A price of $60 in this market will result in:

a surplus of 100 units. insert picture of graph from study guide

Refer to the above diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is:

$60 insert picture of graph from study guide

Refer to the above diagram. If this is a competitive market, price and quantity will move toward:

$40 and $150 respectively. insert picture of graph from study guide

The price elasticity of demand coefficient measures:

buyer responsiveness to price changes.

The demand for a product is inelastic with respect to price if:

consumers are largely unresponsive to a per unit price change.

A deficit on the current account:

normally causes a surplus on the capital and financial account.

If the dollar price of yen rises, then:

the dollar depreciates relative to the yen.

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded:

decreased by 7 percent.

Brenda says, "You would have to pay me $50 to attend that pro wrestling event." For Brenda, the marginal utility of the event is:

negative.

A product has utility if it:

satisfies consumer wants.

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:

8 units of utility.

Marginal utility is the:

change in total utility obtained by consuming one more unit of a good.

Economic cost can best be defined as:

compensations that must be received by resource owners to insure their continued supply.

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

depreciation charges on company-owned equipment.

What do wages paid to blue-collar workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

All are opportunity costs.

Implicit and explicit costs are different in that:

the former refer to non-expenditure costs and the latter to out-of-pocket costs.

Accounting profits typically:

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

Normal profit is:

the return of the entrepreneur when economic profits are zero.

Suppose that a business incurred implicit costs of $200,000 and explicit cost 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. Joan Pastry's explicit costs are:

$150,000. insert picture of data from study guide

Refer to the above data. Joan Pastry's implicit costs, including a normal profit are:

$136,000. insert picture of data from study guide

Refer to the above data. Joan Pastry's total economic costs (explicit + implicit costs, including a normal profit) are:

$286,000. insert picture of data from study guide

Refer to the above data. Joan Pastry's accounting profit is:

$230,000. insert picture of data from study guide

Refer to the above data. Joan Pastry's economic profit is:

$94,000. insert picture of data from study guide

Refer to the above data. Joan Pastry's total revenues exceed its total costs, including a normal profit, by:

$94,000. insert picture of data from study guide

Refer to the above data. Joan Pastry:

is earning an economic profit. insert picture of data from study guide

Refer to the above data. If, other things equal, Joan Pastry's revenue fell to $286,000:

it would earn a normal profit but not an economic profit. insert picture of data from study guide

The basic characteristic of the short run is that:

the firm does not have sufficient time to change the size of its plant.

The short run is characterized by:

at least one fixed resource.

The law of diminishing returns indicates that:

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?

AP continues to rise so long as TP is rising.

Refer to the above data. Diminishing marginal returns become evident with the addition of the:

third worker. insert picture of table from study guide

Refer to the above data. The marginal product of the sixth worker is:

15 units of output. insert picture of table from study guide

Refer to the above data. Average product is at a maximum when:

two workers are hired. insert picture of table from study guide

Fixed cost is:

any cost which does not change when the firm changes its output.

Marginal cost is the:

change in total cost that results from producing one more unit of output.

Refer to the above information. Average fixed cost is:

TFC/Q insert picture of data from study guide

Refer to the above information. Average total cost is:

(TFC+TVC)/Q insert picture of data from study guide

Refer to the above information. Marginal cost is:

change in TVC/change in Q insert picture of data from study guide

Refer to the above information. Total cost is:

TFC + TVC insert picture of data from study guide

In the above figure, curves 1, 2, 3, and 4 represent the:

MC, ATC, AVC, and AFC curves respectively. insert picture of graph from study guide

If a technological advance reduces the amount of variable resources needed to produce any level of output, then the:

MC curve will shift downward.

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