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Buser Microeconomics Final Exam Study Questions
Terms in this set (61)
A society that is producing on its production possibilities frontier is:
a. fully utilizing all of its productive resources
b. not being technologically efficient
c. not utilizing all of its resources
d. producing too much output
Which of the following is true about the difference between demand and quantity demanded?
a. demand refers to a behavioral pattern in response to a set of possible prices
b. at a given price, the quantity people are willing to buy is called demand
c. quantity demanded shifts in response to non-price determinants
d. quantity demanded stays the same even if the price of that product fluctuates in general
Which of the following would cause the demand for a normal good to shift left
a. a decrease in the price of a substitute
b. a decrease in the price of a compliment
c. a decrease in income
d. an increase in the good's price
External benefits in consumption refer to benefits accruing to those
a. who are selling the product to the consumers
b. who bought and consumer the product
c. other than the ones who consumed the product
d. who are consuming the product abroad
When a good is excludable
a. one person's consumption prevents or decreases others' ability to consume it
b. it is possible for sellers to prevent its use by those who have not paid for it
c. consumers have a perception of scarcity of that good
d. the government has specific import policies limiting its supply
Suppose a percentage change in price is 10% and percentage change in quantity demanded is 10%. What is the absolute value of the price elasticity of demand
The price elasticity of demand for table salt is very low. Which of the following is the determinant of this low price elasticity in demand?
a. there are many close substitutes available
b. price elasticity is more inelastic in long-run than short-run
c. the share of salt in a consumers' budget is low
d. salt is a luxury good
When calculating elasticity, why do people care about midpoint formula instead of just using starting point method or end point method?
a. the elasticity is the same even when the price change is reversed
b. midpoint formula is the same as any other method
c. it sounds cool
d. none of the above
In general, marginal utility
a. increases over quantity
b. decreases over quantity
c. stays the same no matter how much is consumed
d. will fluctuate randomly
In general, changes in the price of a good:
a. cause a substitution effect only
b. causes an income effect only
c. causes both an income and substitution effect
d. usually has no effect
Cassie wants to start a cupcake making business and invests $200,000 in capital goods. During the first year, she earns $250,000. How much is her accounting profit?
The long-run average total cost curve is the envelope of:
a. the short-run marginal cost curves
b. the short-run average fixed cost curves
c. the short-run average variable cost curves
d. the short-run average total cost curves
A perfectly competitive firm can be identified by the fact that:
a. there are other firms in the industry producing similar but differentiated products
b. it is making only accounting profits in the short run
c. its average revenue equals its marginal revenue
d. it experiences diminishing marginal returns
A non-discriminating pure monopoly must decrease the price on all units of a product to sell more units. This explains why _______.
a. there are barriers to entry in pure monopoly
b. a pure monopoly has a perfectly elastic demand curve
c. a pure monopoly's marginal revenue curve is below its demand curve
d. total revenues are greater than total costs at the profit maximizing level of output
A monopolist can earn an economic profit in the long run because of:
a. the relatively elastic demand for its product
b. barriers to entry
c. the relatively inelastic demand for it's product
d. the firm's price setting behavior
Which of the following is a characteristic of monopolistic competition
a. standardized product
b. a relatively small number of firms
c. absence of nonprice competition
d. relatively easy entry
One difference between monopolistic competition and pure competition is that
a. products may be homogeneous in monopolistic competition
b. there is some control over price in monopolistic competition
c. monopolistic competition has significant barriers to entry
d. firms differentiate their products in pure competition
What would happen if an advertisement makes the product more attractive
a. It shifts the demand curve to the right thereby shifting MR accordingly. With MC and ATC fixed this firm is likely to generate positive economic profit.
b. It shifts the demand curve to the right thereby shifting MR accordingly. However, MC and ATC shift to the right as well.
c. The demand curve stays the same but MC and ATC shift to the right. Impact on profit is ambivalent.
d. The demand curve and MR shift to the left. The firm generates negative (economic) profit.
Which of the following is not a characteristic of an oligopolistic market?
a. entry is relatively easy
b. firms consider the possible reactions
c. firms are often drawn into game playing situations
d. there are a few sellers of a good service
Which is the following is NOT oligopoly
a. car industry
b. airline industry
c. cell phone service providers
d. none of the above
Mutual interdependence means that each firm in an oligopoly
a. faces a perfectly inelastic demand for its product
b. considers the reactions of its rivals when it determines its own strategies
c. depends on other firms for its imputs
d. depends on other forms for its markets
In a long run equilibrium, a profit, maximizing competitive firm and a monopolistic firms both:
a. earn zero economic profits
b. set price equal to marginal revenue
c. produce at minimum average total cost
d. produce the output at which marginal revenue equals marginal cost
Which of the following markets in the US can reasonably be characterized as monopolistically competitive?
a. jumbo jets
d. first-class mail
Fill in the blanks: Monopolistically competitive firms produce differentiated products. Because each product is unique in some way, a monopolistically competitive firm faces a (i) _______ demand curve. However, because there are many closed substitutes for each product, individual firm's demand is more (ii) _______ than the market demand.
a. (i) downward-sloping (ii) elastic
b. (i) horizontal (ii) elastic
c. (i) downward-sloping (ii) inelastic
d. (i) horizontal (ii) inelastic
Which of these is a characteristic of perfect competition?
a. a small number of large firms supply the market
b. goods are differentiated
c. there are no barriers to entry
d. firms are price setters
Firms earn zero economic profit in the short run when
a. price = average variable cost
b. price = average total cost
c. price = marginal cost
d. price = average fixed costs
Suppose a perfectly competitive industry was operating at its short-run optimum, and a rise in worker productivity lowers marginal costs by 10% at every level of output. Holding all else equal, how will individual firms respond?
a. decrease quantity supplied
b. keep quantity supplied unchanged
c. increase quantity supplied
d. need more information
Consider a perfectly competitive industry with constant costs in the long run. Suppose there is a shock to consumer preferences, leading to a short-run rise in demand for the good. How will the industry's sales price compare to its previous long-run level once it returns to the long run?
a. the new long-run sales price will be lower than the old one
b. the new long-run sales price will be equal to the old one
c. the new long-run sales price will be higher than the old one
d. need more information
Consider a monopolistically competitive firm earning positive profits.
a. in the long run, the firm earns positive profits due to high barriers to entry
b. in the long run, the firm's demand curve shifts inward due to competition; this is due to no barriers to entry
c. the firm could collude with other firms to maximize joint profit
d. advertising has no effect on the demand curve facing the firm
Which of the following best exemplifies an oligopolistic industry?
b. electrical utility
c. pubs or bars
In which collusion game does a firm believe that all price decreases will be matched and no price increases will be matched?
a. the kinked demand curve
b. overt collusion
c. strategic choice: prisoner's dilemma
d. tacit collusion: price leadership
Marginal resource cost (MRC) is
a. the additional output produced as a result of utilizing 1 more unit of a variable resource
b. the additional cost incurred as a result of utilizing 1 more unit of output
c. the additional cost incurred as a result of utilizing 1 more unit of a variable resource
d. the additional revenue generated as a result of utilizing one more unit of a variable resource.
if the wage rate rises, the income effect gives a household the incentive to
a. increase the time spend at leisure and decrease its time spent supplying labor
b. increase its time spend supplying labor and decrease its time spent at leisure
c. increase both the time spent at leisure and at supplying labor
d. decrease both the time spent at leisure and at supplying labor
Which of the following would shift labor demand outwards?
a. worker substitutes become cheaper
b. firms become more productive
c. fall in demand for the goods being produced by labor
d. fall in market wage
Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 78 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is
Pedro has received a wage increase. In his next trip to the supermarket he buys less frozen meals. What kind of goods are frozen meals?
Which of the following is not a determinant of the market demand for good X?
a. demanders' income
b. number of consumers
c. tastes and preferences
d. price of good X
Is if possible for the equilibrium price of a good to stay the same while the equilibrium quantity increases?
a. yes, if both the demand and supply of the good increase by the same amount
b. yes, if the demand increases by the same amount the supply decreases
c. yes, if the supply increases and the demand does not change
d. no, it is not possible
Which of the following is TRUE
a. marginal benefit is upward sloping
b. marginal benefit is downward sloping
c. rational decision making implies MB < MC
d. rational decision making implies MB > MC
The negative slope of the production possibilities curve illustrates that:
a. some resources are always under-utilized
b. when resources are fully utilized, an economy can produce more of one thing only by producing less of something
c. opportunity costs are constant
d. businesses can see more when prices are lower
What is a measure of how responsive one variable is to a change in another variable?
When the demand curve is linear, the price elasticity of demand is
a. more elastic at lower levels of quantity demanded
b. less elastic at lower levels of quantity demanded
d. unitary elastic
A firm knows that the price elasticity of demand is -2 between $150 and $200. What will happen if the firm lowers its sales price from $200 to $150?
a. revenue will fall
b. revenue will rise
c. revenue will be unchanged
d. more information is needed
When do we say that a firm is earning only normal profits?
a. when explicit cost = 0
b. when implicit cost = 0
c. when accounting profit = 0
d. when economic profit = 0
Which of the following helps to explain why perfectly competitive firms are productiviely efficient in the long run?
(i) Perfectly competitive firms have perfectly elastic demand curves
(ii) Each firm in the market is small
(iii) Barriers to enter the market are low
(iv) Firms coordinate with one another to maximize industry profits.
a. i & iii
b. i & iv
c. ii & iii
d. iii & iv
Which of the following best exemplifies a monopolist?
a. soda producer
b. taxi service
c. insurance provider
d. local power utility
Which of these characterize monopolists?
(i) High barriers to entry
(iii) Many firms
(iv) The product has few/no substitutes
a. i & ii
b. i & iv
c. ii & iii
d. ii & iv
Which of the following is TRUE about the third-degree price discrimination?
a. all economic surplus will be transferred to the monopolist
b. it is possible to achieve the allocative efficiency
c. there is an improvement in social welfare when the monopolist can use third-degree price discrimination
d. the monopolist earns less profit because of the discount given to more elastic
Suppose there are two perfectly competitive labor markets and workers can move freely between the two markets. Firms in both markets sell their goods in perfectly competitive product markets. If the government imposes a binding minimum wage in market 1, what will occur?
a. The MRC rises in market 1; the price of the good falls in market 1
b. The MRC rises in market 1; the price of the good falls in market 2
c. The MRC rises in market 1; the price of good rises in market 2.
d. The MRC rises in market 2; the price of good falls in market 2.
Suppose craft unions are able to convince employers that the productivity of unionized workers is higher. What effect does it have on the equilibrium wage rates for unionized and non-unionized workers respectively? Note: Workers are perfectly mobile between sectors.
a. Unionized: Wage rate rises; Non-unionized: Wage rate falls
b. Unionized: Wage rate falls; Non-unionized: Wage rate falls
c. Unionized: Wage rate rises; Non-unionized: Wage rate rises
d. Unionized: Wage rate falls; Non-unionized: Wage rate rises
Coffee and sugar are complements for consumers. If the price of coffee increases, all else equal, then there will be
a. an increase in the price of sugar
b. a leftward shift of the demand for coffee
c. a leftward shift of the demand curve for sugar
d. a rightward shift of the supply curve for sugar
Which of the following leads to a leftward shift in the supply curve.
a. the price of the substitute rises
b. the price of a complement falls
c. the income of consumers decreases
d. the number of sellers in the market decreases
When consuming a good creates a positive externality
a. private demand increases
b. private demand curve understates the marginal social benefit of the good
c. private demand decreases
d. private demand curve overstates the the marginal social benefit of the good
Which of these best exemplifies a public good?
a. clean air
b. unemployment insurance
c. post office
d. toll road
When should domestic producers export their output?
a. when the domestic price is above the world price
b. when the world price is above the domestic price
c. when there are no export tariffs
d. when the country is open to free trade
If the consumer surplus shrinks after a country opens up to trade, which of the following statements is TRUE
a. the country is a net importer
b. the world price is higher than the domestic price
c. the world price is lower than the domestic price
d. the producer surplus also shrinks
When the price of good A rises by 10%, the quantity demanded of good B falls by 5%. The cross price elasticity of good B with respect to the price of good A is _____. The goods are _____.
a. -0.5; substitutes
b. -2; substitutes
c. -0.5; compliments
d. -2; compliments
Suppose the quantity demanded of videogames changes from 20 to 60 when the income changes from 100 to 200. What is the income elasticity and what kind of goods are videogames?
a. Income elasticity = 3/2; luxuries
b. Income elasticity = 2/3; necessities
c. Income elasticity = 3/2; necessities
d. Income elasticity = 2/3; luxuries
According to the law of diminishing marginal utility, the marginal utility associated with consumption of a good ________ with each extra unit that is consumed in a given time period.
a. becomes smaller
b. becomes larger
c. stays constant
d. becomes larger at an increasing rate
Bobby buys only soda and pizza and is spending his entire income. Currently, the marginal utility from a soda is 10 and the price of a soda is $2; the marginal utility from a slice of pizza is 30 and the price of a slice of pizza is $3. To maximize his utility Bobby should:
a. increase his consumption of soda and decrease his consumption of pizza
b. decrease his consumption of soda and increase the consumption of pizza
c. not change his current consumption of soda and pizza
d. buy the same quantities of soda and pizza
Which of the following statements describes monopolistic competition?
a. there are a small number of large firms
b. the firms are price-takers
c. there are high barriers to entry
d. the firms produce a differentiated product
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