Micro Final

Which of the following is not a factor of production?

money

Points on production possibilities frontier are...

efficient

Which of the following will NOT shift a country's production possibilities frontier outward?

a reduction in unemployment

Economic growth is depicted by...

a shift in the production possibilities frontier outward

Which of the following issues is related to microeconomics?

the impact of oil prices on auto production

Which of the following statements about microeconomics and macroeconomics is NOT true?

the study of very large industries is a topic within macroeconomics

Which of the following statements is normative?

the unemployment rate should be lower

Positive statements are

statements of description that can be tested

If a nation has an absolute advantage in the production of a good,

it can produce that good using fewer resources than its trading partner.

If a nation has comparative advantage in the production of a good,

it can produce that good at a lower opportunity cost than its partner.

Which of the following statements about trade is true

it can benefit everyone in society because it allows people to specialize in activities in which they have comparative advantage.

According to the principle of comparative advantage,

countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners.

Which of the following statements is true?

A self-sufficient country at best can consume on its production possibilities frontier.

What would happen to the equilibrium price and quantity in the bicycle market if there were an increase in both the supply and the demand for bicycles?

equilibrium quantity will rise, equilibrium price is ambiguous.

What would happen to the equilibrium price and quantity in the bicycle market if the demand for bicycle increases more than the increase of supply of bicycles?

equilibrium price and quantity will rise.

If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue jeans and tennis shoes are

substitutes.

If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then the camping equipment is

an inferior good.

Which of the following shifts the demand for watches to the right?

a decrease in the price of watch batteries if watch batteries and watches are complements.

All of the following shift the supply of watches to the right except

an increase in the price of watches.

If the price of a good is above equilibrium price,

there is a surplus and the price will fall.

If the price of a good is below equilibrium price

there is a shortage and the price will rise.

If the price of a good is equal to the equilibrium price

the quantity demanded is equal to the quantity supplied and price remains unchanged.

An increase (rightward shift) in the demand for a good will tend to cause

an increase in the equilibrium price and quantity

A decrease (leftward shift) in the supply for a good will tend to cause

an increase in the equilibrium price and a decrease in the equilibrium quantity.

Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers we'd expect that

equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.

Suppose there is an increase in both the supply and demand for personal computers. Furthermore, suppose the supply of personal computers increases more than the demand for personal computers. In the market for personal computers we'd expect that

equilibrium quantity to rise and equilibrium price to fall.

Suppose a frost destroys much of the FL orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice?

equilibrium price to increase and the change in the equilibrium quantity to be ambiguous.

Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today?

price will increase and quantity ambiguous

An inferior good is one for which an increase in income causes a

decrease in demand

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is

price elastic

The price elasticity of demand is defined as

the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good.

in general flatter demand curve is more likely to be

price elastic

in general steeper supply curve is more likely to be

price inelastic

which of the following would cause a demand curve for a good to be price inelastic

the good is a necessity

the demand for which of the following is likely to be the most price inelastic

transportation

if the cross-price elasticity between two goods is negative, the two goods are likely to be

complements

if a supply curve for a good is price elastic, then

the quantity supplied is sensitive to changes in the price of that good

if a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught the fisherman's price elasticity of supply for fresh fish is

zero

A decrease in supply will increase total revenue in that market if

demand is price inelastic

if an increase in the price of a good has no impact on the total revenue in that market, demand must be

unit price elastic

tech improvements in agric that shift supply of agric commodities to the right tend to

reduce TR to farmers as a whole because the demand for food is inelastic

if supply is price inelastic, the value of the price elasticity of supply must be

less than 1

if there is excess capacity in a production facility, it is likely that the firm's supply curve is

price elastic

if demand is linear, then price elasticity of demand is

elastic in the upper portion and inelastic in the lower portion

if the income elasticity of demand for a good is negative, it must be

an inferior good.

if consumers think that there are very few substitutes for a good, then

demand would tend to be price inelastic

for a price ceiling to be a binding constraint on the market, the govt must set it

below the equilibrium price

a binding price ceiling creates

a shortage

suppose the equilibrium price for apartments is$500 per month and the government imposes rent controls of $250. which of the following is unlikely to occur as a result of the rent constraint.

the quality of apartments will improve.

a price floor

sets a legal min on the price at which a good can be sold

which of the following statements about a binding price ceiling is true

the shortage created by the price ceiling is greater in the long run than in the short run

which side of the market is more likely to lobby govt for a price floor

the sellers

the surplus causes by a binding price floor will be greatest if

both supply and demand are elastic

which of the following is an example of a price floor

the min wage

which of the following statements is true if the govt places a price ceiling on gasoline at $1.50 per gallon and the equilibrium price is $1.00 per gallon?

a significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint

within the supply and demand model, a tax collected from the buyers of a good shifts the

demand curve downward by the size of the tax per unit

within the supply and demand model, a tax collected from the sellers of a good shifts the

supply curve upward by the size of the tax per unit

which of the following takes place when a tax is placed on a good?

an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in quantity sold

when a tax is collected from the buyers in a market,

the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers

a tax of $1 per gallon on gas

places a tax wedge of $1 between the prices the buyers pay and the price the sellers receive

the burden of tax falls more heavily on the sellers in a market when

demand is elastic and supply is inelastic

a tax placed on good that is a necessity for consumers will likely generate a tax borden that

falls more heavily on on buyers

the border of a tax falls more heavily on the buyers in a market when

demand is inelastic and supply is elastic

which of the following statements about the burden of a tax is correct?

the distribution of the burden of the tax is determined by the relative elasticities of supply and demand and is not determined by legislation.

for which of the following products would the burden of a tax likely fall more heavily on the sellers?

entertainment

consumer surplus is the area

below the demand curve and above the price

a buyer's willingness to pay is

that buyer's max amount he is willing to pay for a good

if a buyer's willingness to pay for a new Honda is $20,000 and she is able to actually buy it for $18,000 her consumer surplus is

$2,000

An increase in the price of a good along a stationary demand curve

decreases consumer surplus

producer surplus is the area

above the supply curve and below the price

if a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then

the value placed on the last unit of production by buyers exceeds the cost of production

if a benevolent social planner chooses to produce more than equilibrium quantity of a good, then

the cost of product on the last unit exceeds the value placed on it by buyers

the seller's cost of production is

the min amount the seller is willing to accept for a goo

total surplus is the area

below the demand curve and above the supply curve

an increase in the price of a good along a stationary supply curve

increases producer surplus

Adam Smith's invisible hand suggests that a competitive market outcome

maximizes total surplus

In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should

allow the market to seek equilibrium on its own

If buyers are rational and there is no market failure,

free market solutions are efficient and maximize total surplus

if a producer has market power (can influence the price of the product in the market) then free market solutions

are inefficient

if a market is efficient, then

the market allocates output to the buyers who value it the most; market allocates buyers to the sellers who can produce the good at the least cost; the quantity produced in the market maximizes the sum of consumer and producer surplus

if a market generate a side effect or externality, then free market solutions

are inefficient

medical care clearly enhances people's lives. therefore, we should consume medical care until

the benefits buyers place on it equal the costs of producing it.

joe has ten baseball gloves and sue has none. a baseball glove costs $50 to produce. if joe values an additional baseball glove at $100 and sue values a baseball glove at $40, then to maximize

efficiency, joe should receive the glove

suppose that the price of a new bicycle is $300. sue values a new bicycle at $400. it costs $200 for the seller to produce the new bicycle. what is the value of total surplus if sue buys a new bike?

$200

if free trade is allowed, a country will export a good if the world price is

above the before-trade domestic price of the good

suppose the world price is below the before-trade domestic price for a good. if a country allows free trade in this good,

consumers will gain and producers will lose

when a country allows trade and exports a good,

domestic producers are better off, domestic consumers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.

when politicians argue that outsourcing or offshoring of technical support to India by Dell Comp. Co. is harmful to the US economy, they are employing which of the following arguments for restricting trade

the jobs argument

because producers are better able to organize than consumers are, we would expect there to be political pressure to create

import restrictions

an externality is

the uncompensated impact of one person's actions on the well being of a bystander

a negative externality generates

a social cost curve that is above the supply curve (private cost curve) for a good

a positive externality generates

a social cost curve that is above the demand curve (private value curve) for a good

a negative externality (that has not been internalized) causes the

equilibrium quantity to exceed the optimal quantity

a positive externality (that has not been internalized) causes the

optimal quantity to exceed the equilibrium quantity

when an individual buys a car in a congested urban area, it generates

a negative externality

the most efficient pollution control system would ensure that

the polluter with the lowest cost of reducing pollution reduce their pollution the greatest amt

according to the coast theorem, private parties can solve the problem of externalities if

there are no transaction costs

which of the following is not considered a transaction cost incurred by parties in the process of contracting to eliminate a pollution externality ?

costs incurred to reduce the pollution

bob and tom live in a university dorm. bob values playing music at $100. tom values peace and quiet at $150. which of the following statements is true?

it is efficient for bob to stop playing loud music regardless of who has the property right to the level of sound.

bob and tom live in a university dorm. bob values playing loud music at $100. tom values peace and quiet at $150. which of the following statements is true about an efficient solution to this externality problem is bob has the right to play loud music and

tom will pay bob between $100 and $150 to stop playing music

which of the following is true regarding tradable pollution permits and corrective taxes?

corrective taxes and tradable pollution permits create an efficient market for pollution.

the gas-guzzler tax placed on new vehicles that get very poor mileage is an example of

an attempt to internalize a negative externality

a corrective tax on pollution

sets the price of pollution

tradable pollution permits

set the quantity of pollution

when wealthy alumni provide charitable contributions to their alma mater to reduce the tuition payments of current students, it is an example of

an attempt to internalize a positive externality

suppose an industry emits a negative externality such as pollution, and the possible methods to inter native the externality are command-and- control policies, corrective taxes, and tradable pollution permits. if economists were to rank these methods for

tradable pollution permits, corrective taxes, command-and-control policies

accounting profit is equal to total revenue minus

explicit costs

economic profit is equal to total revenue minus

the sum of implicit and explicit costs

if there are implicit costs of production

accounting profit will exceed economic profit

if a production function exhibits diminishing marginal product, its slope becomes

flatter as the quantity of input increases

if a production function exhibits diminishing marginal producy, the slope of the corresponding total cost curve becomes

steeper as the quantity of output increases

which is a variable cost in the short run

wages paid to factory labor

when marginal costs are below ATC

ATC are falling

if marginal costs equal ATC

ATC minimized

If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product, the corresponding marginal cost-curve will

be U-shaped

in the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience

economies of scale

the efficient scale of production is the quantity of output that minimizes

ATC

Which of the following is true

all costs are variable in the long run

which of the following is NOT a characteristic of a competitive market

firms generate small but positive economic profits in the long run

which of the following markets would most closely satisfy the requirements fora competitive market

gold bullion

if a competitive firm doubles its output, its total revenue

doubles

for a competitive firm, marginal revenue is

equal to the price of the good sold

the competitive firm maximizes profits when it produces output up to the point where

marginal cost equal marginal revenue

if a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

increased production

in the short run, the competitive firm's supply curve is

the portion of the marginal-cost curve that lies above the AVC curve

in the long run, the competitive firm's supply curve is

the portion of the marginal-cost curve that lies above the ATC curve

the long-run market supply curve

is always more elastic than the short-run supply curve

in the long-run, some firms will exit the market if the price of the good offered for sale is less than

ATC

if all firms in a market have identical cost structures and if inputs used in the production of the good in that market are readily available, then the long-run market supply curve for a good could be

perfectly elastic

if an input necessary for production is in limited supply so that an expansion of the industry raises costs for all existing firms in the market, then the long-run market supply curve for a good could be

upward sloping

if the long-run market supply curve for a good is perfectly elastic, an increase in the demand for that good will, in the long run, cause

an increase in the number of firms in the market but no increase in the price of the good

in long run equilibrium in a competitive market, firms are operating at

the min of their ATC curves, the intersection of MC and MR, their efficient scale and 0 economic profit

which of the following is not a barrier to entry in a monopolistic market

a single firm is very large

a firm whose ATC continually declines at least to the quantity that could supply the entire market is known as a

natural monopoly

a monopolist maximizes profit by producing the quantity at which

marginal revenue equals marginal cost

which of the following statements about price and marginal cost in competitive and monopolized markets is true

in competitive markets, price equals marginal cost; in monopolized markets price exceeds marginal cost

South-Western is a monopolist in the production of your textbook because

the government has granted them exclusive rights to produce it

the inefficiency associated with monopoly is due to

underproduction of the good

compared to a perfectly competitive market, a monopoly market will usually generate

higher prices and lower output

the monopolist's supply curve

does not exist

using government regulations to force a natural monopoly to charge a price equal to its marginal cost will

cause the monopolist to exit the market

the purpose of antitrust laws is to

increase competition in industry by preventing mergers and breaking up large firms

public ownership

tends to be inefficient

which of the following statements about price discrimination is NOT true

perfect price discrimination generates a deadweight loss

if regulators break up a natural monopoly into many smaller firms, the cost of production

will rise

a monopoly is able to continue to generate economic profits in the long run because

there is some barrier to entry in the market

if marginal revenue exceeds marginal cost, a monopolist should

increase output

which of the follow is not a characteristic of a monopolistically competitive market

long-run economic profits

which of the following products is least likely to be sold in a monopolistically competitive market

cotton

which of the following is true regarding the similarities and differences in monopolistic competition and monopoly?

the monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run

in the short run, if the price is above ATC in a monopolistically competitive market, the firm

makes profits and firms enter the market

monopolistically competitive firms choose the quantity at which marginal cost equals

marginal revenue and then use the demand curve to determine the price consistent with quantity

monopolistically competitive firms produce

with excess capacity and charge a price above marginal cost

one source of inefficiency in monopolistic competition is that

because price is above marginal cost, some units are not produced that buyers value in excess of the cost production and this causes deadweight loss.

the use of the word "competition" in the name of the market structure called "monopolistic competition" refers to the fact that

there are many sellers in a monopolistically competitive market and there is free entry and exit in the market just like a competitive market

the use of the word "monopoly" in the name of the market structure called "monopolistic competition" refers to the fact that

a monopolistically competitive firm faces a downward-sloping demand curve for its differentiated product and so does a monopolist.

which of the following firms is most likely to spend a large percentage of their revenue on advertising

the producer of a highly differentiated consumer product

expensive television commercials that appear to provide no specific info about the product

may be useful bc they provide a signal to the consumer about the quality of the product

defenders of the use of brand names argue that brand names

provide info about the quality of the product; give firms incentive to maintain high quality; are useful even in socialist economies such as the former soviet union

which of the following firms has the least incentive to advertise

a wholesaler of crude oil

the market for hand tools is dominated by Black & Decker, Stanley, and Craftsmen. This market is best described as

an oligopoly

if oligopolists engage in collusion and successfully form a cartel, the market outcome is

the same as if it were served by a monopoly

when an oligopolist individually chooses its level of production to maximize its profits, it produces an output that is

more than the level produced by a monopoly and less than the level produced by a competitive market

when an oligopolist individually chooses its level of production to maximize its profits, it produces a price that is

less than the price charged by a monopoly and more than the price charged by a competitive market

as the number of sellers in an oligopoly increases,

the price in the market moves closer to the marginal cost

a situation in which oligopolists interacting with one another each choose their best strategy given the strategies that all the other oligopolists have chosen is known as a

Nash equilibrium

many economists argue that the resale price maintenance

has a legitimate purpose of stopping discount retailers from free riding on the services provided by full-service retailers

collusion is difficult for an oligopoly to maintain

bc antitrust laws make it illegal, bc self-interest is in conflict with cooperation, and if additional firms enter the oligopoly

laws that make it illegal for firms to conspire to raise prices or reduce production are known as

antitrust laws

the most important factors of production are

land, labor, and capital

if a factor exhibits diminishing marginal product, hiring additional units of the factor will

generate even smaller amounts of output

the value of marginal product of labor is

the price of the output times the marginal product of labor

for a competitive, profit-maximizing firm, the value of the marginal product curve for capital is the firm's

demand curve for capital

an increase in the supply of labor

decreases the value of marginal product of labor and decreases the wage

a decrease in the demand for fish

decreases the value of the marginal product of fisherman, reduces their wage and reduces employment in the fishing industry

an increase in the demand for apples will not cause

a decrease in the number of apple pickers employed

an increase in the demand for apple will cause

an increase in the price of apples, an increase in the value of the marginal product of apple picks, and increase in the wage of apple pickers

if both input and output markets are competitive and firms are profit maximizing, then in equilibrium, each factor of production earns

the value of its marginal product

an individual firms demand for a factor of production

slopes downward due to the factors diminishing marginal product

an increase in the demand for a firm's output

increases the prosperity of both the firm and the factors hired by the firm

a competitive, profit-maxizing firm should hire workers up to the point where

the value of marginal product of labor equals the wage

workers who have a high value of marginal product

are usually high paid, have skills that are in relatively scarce supply, and can produce output for which there is great demand

an increase in the price of automobiles shifts the demand for autoworkers

right and increases their wage

suppose that a war is fought with biological weapons. the weapons destroy people but not capital. what is likely to happen to equilibrium wages and rental rates after the war when compared to their values before the war

wages rise and rental rates fall

if a person who works in a coal mine gets paid more than a person with similar background and skills who works in a safer job then

we have observed a compensating differential

according to the human-capital view of education, education

increases human capital and the wages of workers

according to the signaling view of education, education

only helps firms sort workers into high-ability and low ability-workers

all of the following would tend to increase a worker's wage

more education, working the night shift, having a greater amount of natural ability and working harder

in a competitive market, which is least likely to be the source of a persistent discriminator wage differential

the employer

if two jobs require the same amount of skills and experience, the job that pays the most is most likely to be the one that is

unpleasant

since 1980, the gap between the wages of skilled and unskilled workers in the US has

increased

the relative wage of unskilled workers has fallen in the US likely as a result of a relative

decrease in the demand for unskilled workers because of the increase in technology/international trade

which of the following professionals is most likely to be able to generate the income of a superstar

the best writer

it is not considered discrimination when an employer offers different opportunities to individuals that differ only by their

productivity

in order for a market to support superstars, it must have which of the following characteristics

every customer must want the food supplied by the best producer, and the technology must east for the best producer to supply every customer at a low cost

which of the following statements regarding discrimination is true

discrimination can only persist in a competitive labor market if customers are willing to pay to maintain the discriminatory practice or the government requires discrimination

competitive markets tend to

reduce labor market discrimination because non discriminating firms will employ cheaper labor, earn more profits, and drive discriminating firms out of the market

a wage differential among groups may not by itself be evidence of discrimination in the labor market because different groups have

different levels of education, different preferences for the type of work they are willing to do and different levels of job experience

which of the following explanations of wage differentials is not likely to be true

employers in competitive markets are bigots

which of the following could result in women being paid less than men

customers prefer to deal with men, women prefer pleasant jobs, women enter/leave labor force to care for children and women obtain less human capital because they don't plan to work continuously until retirement

the poverty line is set at

three times the cost of providing an adequate diet

because in-kind transfers are not accounted for in standard measures of income distribution, the standard measures of income distribution

exaggerate the inequality of living standards

because people's incomes vary over the life cycle and because there are transitory shocks to people's incomes, the standard measure of income distribution

exaggerate the inequality of living standards

an increase in minimum wage will cause a relative large increase in unemployment among

unskilled workers if the demand for labor is relative elastic

current antipoverty programs discourage work because

benefits are reduced at such a high rate when recipients earn more income that there is little or no incentive to work once one is already receiving benefits

how people make decisions

too sure of own abilities, reluctant to change minds in the face of new info, give too much weight to a small number of vivid observations

which of the following helps explain why firms pay bonuses to workers during particularly profitable years to prevent workers from becoming disgruntled?

people care about fairness

john's friend dies of a sudden heart attack. john rushes to his doctor for an expensive physical exam. this response demonstrates

people give too much weight to a small number of vivid observations

which of the following is a response to people's inconsistent behavior over time

forced contribution to a retirement plan