Microeconomics Final (Midterm 1: Questions 1-50)

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If multiple choice, answer JUST the letter. If true/false, answer with T or F.

Suppose that a 10 percent increase in the price of normal good Y causes a 20% increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is:
A. positive and therefore complements
B. negative and therefore complements
C. negative and therefore these goods are substitutes
D. positive and therefore substitutes

D

Which of the following statements is correct?
A. economic profits induce firms to enter an industry; losses encourage firms to leave
B. Normal profits will cause an industry to expand
C. Economic profits induce firms to leave an industry profits encourage firms to leave
D. Economic profits and losses have no significant impact on the growth or decline of an industry

A

A firm can sell as much as it wants at constant price. Demand is thus:
A. perfectly elastic
B. relatively elastic
C. perfectly inelastic
D. relatively inelastic

A

Economists would describe the US automobile industry as:
A. a pure monopoly
B. monopolistically competitive
C. an oligopoly
D. purely competitive

C

Implicit and explicit costs are different in that:
A. the latter refer to non-expenditure costs and the former to monetary payments
B. the former refer to non-expenditure costs and the latter to monetary payments
C. explicit costs are opportunity costs; implicit costs are not
D. implicit costs are opportunity costs; explicit costs are not

B

Quasi-Public goods all have negative externalities because the government provides them. (T/F)

F

In efficiently functioning markets, the supply curve must reflect all the costs of production.

T

Which of the following industries most closely approximates pure competition?
A. clothing
B. steel
C. farm implements
D. agriculture

D

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

T

From an economist's perspective, an important consideration for policies to address global warming is:
A. a lawsuit that can arise from the enactment of the policies
B. the market for recyclable inputs
C. the marginal cost and marginal benefit of policies
D. the supply and demand for recycled products

C

A good with a price-elasticity coefficient of ).75 has a demand that is price-inelastic. T/F

T

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

T

The utility of a good or service:
A. is easy to quantify
B. rarely varies from person to person
C. is synonymous with usefulness
D. is the satisfaction or pleasure one gets from consuming it

D

Creative destruction:
A. is applicable to planned economies, but not to market economies
B. the process by which large firms buy up small firms
C. the process by which new firms and new products replace existing dominant firms and products
D. a term coined many years ago by Adam Smith

C

A person should consume more of something when its marginal benefit exceeds its marginal cost. T/F

T

By free enterprise, we mean that products are provided free to those who can't afford to buy them.

F

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

F

Which of the following distinguishes the short run from the long run in pure competition?
A. firms can enter and exit the market in the long run, but not in the short run
B. firms use the MR=MC rule to maximize profits in the short run, but not in the long run
C. firms attempt to maximize profits in the long run, but not in the short run
D. the quantity of labor hired can vary in the long run, but not in the short run

A

the law of diminishing returns explains diseconomies of scale. T/F

F

Government-set price floors and price ceilings interfere with rationing function of price in a fee market. T/F

T

Characteristics of public goods include non-rivalry, non-excludability, and the free-rider problem. T/F

T

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?
A. All are opportunity costs
B. All are implicit costs
C. all are explicit costs
D. None are either implicit or explicit costs

A

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

F

In which of the following instances will total revenue decline?
A. price rises and demand is elastic
B. price rises and demand is inelastic
C. price rises and supply is elastic
D. price falls and demand is elastic

A

Price is constant or given to the individual firm selling in a purely competitive market because:
A. of product differentiation reinforced by extensive advertising
B. the firm's demand curve is downsloping
C. there are no good substitutes for its product
D. each seller supplies a negligible fraction of total supply

D

Which of the following is an example of creative destruction?
A. automobile production causes the wagon industry to shut down
B. Apple earns more economic profits than other manufacturers of MP3 players
C. Starbucks shuts down stores to crate greater demand for its remaining outlets
D. an economic recession forces firms out of business

A

All costs are variable in the long run but not the short run. T/F

T

Which of the following is not a characteristic of pure competition?
A. a standardized product
B. price strategies by firms
C. no barriers to entry
D. a large number of sellers

B

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. T/F

T

Extenalities are unforeseen costs or benefits accruing to a company producing a product. T/F

F

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

F

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

F

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

T

A firm's economic profit is usually higher than its accounting profit.

F

Which of the following types of firms are least likely to have their MC, AVC, and ATC curves affected by fluctuations in gasoline prices?
A. taxi cab and limousine companies
B. firms like UPS that use a fleet of gasoline-powered vehicles
C. firms like iTunes that distributed their products over the internet
D. companies that operate bus tours to popular vacation destinations

C

An effective anti pollution policy from the economic perspective requires that all pollution be eliminated and banned.

F

The primary force encouraging the entry of new firms into a purely competitive industry is:
A. economic profits earned by firms already in the industry
B. a desire to provide goods for the betterment of society
C. government subsidies for start-up firms
D. normal profits earned by firms already in the industry

A

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

F

A constant-cost industry is one in which:
A. a higher price per unit wil not result in an increased output
B. if 100 units canbe produced for $100, then 150 can be produced for $150, 200 for $200, and so forth
C. the total cost of producing 200 or 300 units is no greater than the costs of producing 100 units
D. the demand curve and therefore the unit price and quantity sold seldom change

B

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

T

The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20%. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that:
A. the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic
B. both groups felt that the demand was inelastic but for different reasons
C. both groups felt that the demand was elastic but for different reasons
D. the railroad felt that the demand for passenger service was elastic and opponents of the rate increase felt it was inelastic.

A

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

T

Economic profits are calculated by subtracting:
A. explicit costs from total revenue
B. implicit costs from normal profits
C. implicit costs from total revenue
D. explicit and implicit costs from total revenue

D

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. T/F

F

If the price of ground beef increases, the demand for hamburger buns is predicted to increase as well. T/F

F

The supply of tickets to a major sporting event held in a stadium is perfect inelastic. T/F

T

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is:
A. relatively elastic
B. decreasing
C. relatively inelastic
D. perfectly elastic

C

Micro economics is concerned with the establishing of an overall view of the operation of the economic system. T/F

F

A surplus indicates that the quantity demanded is greater than the quantity supplied at the price. T/F

F

In the price range where demand is elastic, if the seller of the good raises its price, then total revenues will increase. T/F

F

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