Micro economics

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final review

Which of the following statements best illustrates the concept of derived demand?

A. As income goes up the demand for farm products will increase by a smaller relative amount.
B. A decline in the price of margarine will reduce the demand for butter.
C. A decline in the demand for shoes will cause the demand for leather to decline. D. When the price of gasoline goes up, the demand for motor oil will decline.

C. A decline in the demand for shoes will cause the demand for leather to decline.

When economists say that the demand for labor is a derived demand, they mean that it is: A. dependent on government expenditures for public goods and services.
B. related to the demand for the product or service labor is producing.
C. based on the desire of businesses to exploit labor by paying below equilibrium wage rates.
D. based on the assumption that workers are trying to maximize their money incomes.

B. related to the demand for the product or service labor is producing

The basic formula for the price elasticity of demand coefficient is:
A. absolute decline in quantity demanded/absolute increase in price.
B. percentage change in quantity demanded/percentage change in price.
C. absolute decline in price/absolute increase in quantity demanded.
D. percentage change in price/percentage change in quantity demandedB. percentage change in quantity demanded/percentage change in price

B. percentage change in quantity demanded/percentage change in price

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:
A. 4.00.
B. 2.09.
C. 1.37.
D. 3.94

C. 1.37.

The above diagram shows two product demand curves. On the basis of this diagram we can say that: A. over range P1P2 price elasticity of demand is greater for D1 than for D2.
B. over range P1P2 price elasticity of demand is greater for D2 than for D1.
C. over range P1P2 price elasticity is the same for the two demand curves.
D. not enough information is given to compare price elasticities.

A. over range P1P2 price elasticity of demand is greater for D1 than for D2.

Marginal revenue product measures the:
A. amount by which the extra production of one more worker increases a firm's total revenue. B. decline in product price that a firm must accept to sell the extra output of one more worker.
C. increase in total resource cost resulting from the hire of one extra unit of a resource.
D. increase in total revenue resulting from the production of one more unit of a product.

A. amount by which the extra production of one more worker increases a firm's total revenue.

If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the:
A. marginal revenue product of each worker is $25.
B. marginal revenue product of the first worker is $20.
C. marginal revenue product of the second worker is $20.
D. data given do not permit the determination of the marginal revenue product of either worker.

C. marginal revenue product of the second worker is $20.

A profit-maximizing firm employs resources to the point where:
A. MRC = MP.
B. Resource price equals product price.
C. MRP = MRC. D. MP = product price.

C. MRP = MRC.

Refer to the above graph. A move from b to a along labor demand curve D1 would result from:
A. a decrease in the price of a substitute resource, assuming that the substitution effect exceeds the output effect.
B. an increase in the wage rate. C. a decrease in the wage rate. D. an increase in the demand for the product that this labor is helping to produce.

B. an increase in the wage rate.

Refer to the above graph. Each of the three labor demand curves shown slopes downward because of the:
A. law of diminishing marginal utility.
B. law of increasing opportunity costs.
C. principal-agent problem.
D. law of diminishing returns.

D. law of diminishing returns.

Refer to the above data. Over the $10 to $8 range of wage rates, the demand for labor is: A. perfectly elastic.
B. elastic.
C. unit-elastic.
D. inelastic.

D. inelastic

Assuming pure competition, which of the following are equivalents? A. MRPL/PL = MRPC/PC and Px = 1/MC
B. MRPL/PL = MRPC/PC and Px = AVC
C. Px = MC and MRPL/PL = MRPC/PC = 1
D. Px = MC and MPL/PL = MPC/PC

C. Px = MC and MRPL/PL = MRPC/PC = 1

If the nominal wages of carpenters rose by 5 percent in 2010 and the price level increased by 3 percent, then the real wages of carpenters:
A. decreased by 2 percent.
B. increased by 2 percent.
C. increased by 3 percent.
D. increased by 8 percent.

B. increased by 2 percent.

Marginal revenue product (MRP) of labor refers to the:
A. increase in total revenue resulting from the sale of an additional unit of output.
B. amount by which a firm's total resource cost increases when it employs one more unit of labor.
C. increase in total revenue resulting from the hire of one more unit of labor.
D. price at which additional units of labor can be employed in a monopsonized labor market.

C. increase in total revenue resulting from the hire of one more unit of labor.

A firm that is hiring labor in a purely competitive labor market and selling its product in a purely competitive product market will maximize its profit by hiring labor until:
A. marginal revenue product is zero.
B. marginal revenue product exceeds marginal resource (labor) cost by the greatest amount.
C. marginal resource cost is zero.
D. marginal revenue product equals marginal resource (labor) cost.

D. marginal revenue product equals marginal resource (labor) cost

Refer to the above data. In maximizing its profit, this firm will employ:
A. 2 units of labor.
B. 3 units of labor.
C. 4 units of labor.
D. 5 units of labor.

B. 3 units of labor

Refer to the above data. At the profit maximizing level of employment, this firm's total labor cost will be:
A. $16.
B. $30.
C. $24.
D. $32.

C. $24.

The economic term for a firm that is the sole buyer in a market is: A. monopsonist.
B. monopolist.
C. bilateral competitor.
D. bilateral monopolist.

A. monopsonist.

In a monopsonistic labor market the employer will maximize profits by employing workers up to that point at which:
A. the difference between the wage rate and marginal resource (labor) cost is at a maximum.
B. marginal revenue product equals marginal resource (labor) cost.
C. the wage rate equals marginal revenue product.
D. the wage rate equals marginal resource (labor) cost

B. marginal revenue product equals marginal resource (labor) cost.

Which of the following is most likely to be an example of monopsony?
A. The market for fast-food workers in a large summer resort town.
B. The market for card dealers in Las Vegas.
C. The market for major league baseball umpires. D. The market for retail sales clerks in a major city.

C. The market for major league baseball umpires.

If a firm is hiring variable resources D and F in imperfectly competitive input markets, it will maximize profits by employing D and F in such quantifies that:
A. MRPD/MRCD = MRPF/MRCF = 1.
B. MRPD/MRCD = MRPF/MRCF. C. MRPD/PD = MRPF/PF = 1.
D. MRPD/PD = MRPF/PF.

A. MRPD/MRCD = MRPF/MRCF = 1.

Inclusive unionism is practiced mostly by:
A. professional and semiprofessional employees.
B. small unions comprised of skilled workers, such as the bricklayers.
C. industrial unions.
D. craft unions.

C. industrial unions.

A craft union attempts to increase wage rates by:
A. equating the MRP and the MRC curves.
B. shifting the labor supply curve to the left.
C. shifting the labor supply curve to the right.
D. shifting the MRP curve to the right.

B. shifting the labor supply curve to the left.

What is the relationship between living standards and birthrates?
A. The relationship is negative at low levels of income, but becomes increasingly positive as incomes rise.
B. They are unrelated.
C. The relationship is positive (directly related).
D. The relationship is negative (inversely related).

D. The relationship is negative (inversely related).

Resource demand has grown over time:
A. because of population growth only.
B. because of increased consumption per person only. C. because of both increased population and greater consumption per person.
D. despite decreases in population and consumption per person.

C. because of both increased population and greater consumption per person.

About half of U.S. electricity is generated from:
A. hydroelectric.
B. petroleum.
C. nuclear energy.
D. coal.

D. coal.

Alternative fuels become more economically viable as:
A. the demand for oil decreases.
B. subsidies for alternative fuels are removed.
C. oil exploration and drilling technology improve.
D. the price of oil rises.

D. the price of oil rises.

As of 2010, the world's population is approximately:
A. 6.8 billion.
B. 5.2 billion.
C. 10.8 billion.
D. 1.2 trillion.

A. 6.8 billion.

Which of the following is considered a renewable natural resource?
A. Aquifers.
B. Coal.
C. Petroleum.
D. Iron.

A. Aquifers.

Which of the following is considered a renewable natural resource?
A. Natural gas.
B. Copper.
C. Solar power.
D. Coal.

C. Solar power.

In fisheries management, a fishery is defined as:
A. an operation that breeds and releases fish and other marine animals into the wild.
B. a stock of fish or other marine animals that can be thought of as a logically distinct group.
C. a company that harvests fish or other marine animals.
D. a government organization that regulates the harvesting of fish and other marine animals.

B. a stock of fish or other marine animals that can be thought of as a logically distinct group.

Total Allowable Catch (TAC):
A. explicitly limits the number of days in a season that particular fish may be caught. B. explicitly limits the number of boats allowed to fish in a particular area.
C. explicitly limits the number or tonnage of fish that can be harvested from a particular fishery.
D. issues tradable permits limiting the number of fish a particular fisher can catch.

C. explicitly limits the number or tonnage of fish that can be harvested from a particular fishery.

Employer-provided private health insurance:
A. is unique to the United States and not typically found in other countries.
B. is the most common form of health care provision in industrialized countries.
C. substantially reduces the cost of health care provision relative to national health insurance schemes.
D. provides a small percentage of health care spending in the United States.

A. is unique to the United States and not typically found in other countries.

The twin problems of the U.S. health care industry are:
A. rapidly rising costs and unequal access to health care. B. declining quality of health care and the duplication of specialized equipment at hospitals.
C. declining per capita spending on health care and the moral hazard problem.
D. the decline in the number of family physicians and the failure to vaccinate children.

A. rapidly rising costs and unequal access to health care.

Employer-provided private health insurance began in the United States because:
A. the rising threat of socialism prompted U.S. companies to provide insurance to dampen enthusiasm for socialist reform. B. during World War II, wage and price controls forced employers to use nonwage forms of compensation to attract workers.
C. poor health conditions at the beginning of the 20th century prompted the U.S. government to require new companies to offer health insurance to employees.
D. the American Medical Association successfully lobbied the U.S. government to provide subsidies to companies offering private health insurance to employees.

B. during World War II, wage and price controls forced employers to use nonwage forms of compensation to attract workers.

Employer-provided private health insurance in the U.S. has resulted in: A. incentives that encourage the overuse of health care. B. incentives that discourage the use of health care, and overall poorer health. C. lower costs of health care as providers better achieve economies of scale. D. comprehensive coverage of the U.S. population, with few lacking access to adequate health care.

A. incentives that encourage the overuse of health care

The price of medical care in the United States has:
A. remained relatively unchanged in recent years.
B. risen slower than the overall price level.
C. risen at the same pace as the overall price level.
D. risen faster than the overall price level.

D. risen faster than the overall price level.

The unemployed are disproportionately represented among the uninsured because: A. one must be working to qualify for Medicaid.
B. most workers obtain health insurance through their employers.
C. most are young and in excellent health, so they choose not to purchase health insurance.
D. a large percentage of the unemployed are heads of single-parent families.

B. most workers obtain health insurance through their employers.

Health care:
A. is an inferior good.
B. is a normal good.
C. is highly elastic with respect to price.
D. has a price elasticity of 1.

B. is a normal good.

Health care costs have greatly increased in recent years in the United States. This fact alone does not establish an overallocation of resources to health care because:
A. the benefits of health care have also greatly increased in recent years.
B. rising medical care prices have inflated health care costs. C. the marginal cost of health care exceeds the average total cost of health care.
D. negative externalities sometime result from additional health care spending.

A. the benefits of health care have also greatly increased in recent years.

Insurance companies use deductibles and copayments to: A. increase access to health care.
B. reduce health care costs by discouraging overuse of the health care system.
C. prevent small companies from self-insuring their workers.
D. keep government out of the health care insurance industry.

B. reduce health care costs by discouraging overuse of the health care system.

Suppose you go to a doctor but your health insurance plan does not reimburse you because you have not yet paid enough out-of-pocket for the year to qualify for insurance benefits. This is an example of:
A. coinsurance.
B. a deductible.
C. monopsony power.
D. a deferred benefit plan.

B. a deductible.

43. Which of the following is a supply factor in the health care market? A. defensive medicine B. the aging of the population C. slow productivity growth in the health care industry
D. asymmetric information

C. slow productivity growth in the health care industry

Which of the following is the best example of a fishery?
A. All marine life along the Great Barrier Reef.
B. Pacific Halibut.
C. U.S. Department of Fish and Game.
D. Crab.

B. Pacific Halibut.

Which of the following is considered a non-renewable natural resource?
A. Wind.
B. Timber.
C. Oceans.
D. Tin.

D. Tin.

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