question
To Economists, Scarcity means
answer
unlimited wants cannot be satisfied by the limited resources
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Joe decides to attend the one-hour review session for microeconomics instead of working at his job. His job pays him $10 per hour. Joe's opportunity cost of attending the review session is
answer
the $10 he could have earned at his job.
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Decision making on the margin involves
answer
comparing the marginal cost and marginal benefits when making a decision.
question
Ford has announced that it will stop making three of its car lines for North America. Instead, the company will manufacture cross-overs, SUVs, and light trucks. Which of the three fundamental economic questions does this information answer?
answer
What?
question
Payments to the factors of production are
answer
rent, wages, interest, and profit or loss
question
What are the two types of markets in the circular flow model?
answer
factors and goods
question
Producers in the U.S. and in Canada can choose to produce either cheese or steel. The table below shows the output choices for each of the countries. Based on the chart, how many pounds of cheese does a pound of steel cost in Canada?
answer
2/3
question
Based on the table above, which country has comparative advantage(lowest opportunity costs) in which good?
answer
Canada has comparative advantage in cheese, the U.S. has comparative advantage in steel.
question
9. As an economy grows,
answer
its PPF shifts outward
question
10. The below figure shows the production possibility frontier for a country. Which point identifies a combination of goods that is attainable and inefficient?
answer
A
question
The law of demand refers to how
answer
the quantity demanded changes when the price of the good changes
question
A change in the demand for apples could result from any of the following EXCEPT:
a) a change in the number of buyers.
b) increased preferences for fresh fruit consumption for health reasons.
c) a change in the price of an apple.
d) a change in the price of a banana.
a) a change in the number of buyers.
b) increased preferences for fresh fruit consumption for health reasons.
c) a change in the price of an apple.
d) a change in the price of a banana.
answer
A change in the price of apples
question
The table below gives the demand schedule for lattes at the Bottomless Cup. If the price of a latte is $3, then the quantity of lattes demanded is ________ an hour. *
answer
60
question
Which of the following increases the supply of gasoline?
a) a situation where the quantity of gasoline demanded exceeds the quantity supplied
b) an increase in the price of gasoline
c) a decrease in the price of a resource used to produce gasoline, such as crude oil
d) a decrease in the demand for gas-guzzling, sport utility vehicles
a) a situation where the quantity of gasoline demanded exceeds the quantity supplied
b) an increase in the price of gasoline
c) a decrease in the price of a resource used to produce gasoline, such as crude oil
d) a decrease in the demand for gas-guzzling, sport utility vehicles
answer
a decrease in the price of a resource used to produce gasoline, such as crude oil
question
An increase in demand for ice cream with no change in supply of ice cream, will result in
answer
an increase in equilibrium price and quantity
question
An increase in demand for ice cream and a simultaneous increase in supply of ice cream, will result in:
a) a decrease in equilibrium quantity and an ambiguous equilibrium price.
b) an increase in equilibrium quantity and an ambiguous equilibrium price.
c) a decrease in equilibrium price and quantity.
d) a decrease in equilibrium quantity an
a) a decrease in equilibrium quantity and an ambiguous equilibrium price.
b) an increase in equilibrium quantity and an ambiguous equilibrium price.
c) a decrease in equilibrium price and quantity.
d) a decrease in equilibrium quantity an
answer
b) an increase in equilibrium quantity and an ambiguous equilibrium price.
question
Calculate the price elasticity of demand, when the price increases by 10% and quantity demanded decreases by 5% and determine if the demand is elastic or inelastic.
answer
0.5; Inelastic
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If a 10 percent decrease in income brings about a 5 percent decrease in the demand for a good, then the
answer
good is a normal good
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If two goods are ________, then an increase in the price of one leads to ________ in the quantity demanded of the other.
answer
Complements; a decrease
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23. Total revenue increases if the price of the good
answer
rises and demand is inelastic
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Suppose the price of a box of cereal rises by 40% and the price elasticity of demand is 2. What is the percentage change in the quantity demanded?
answer
80%
question
Which of the following does NOT influence the price elasticity of demand?
a) the availability of substitutes.
b) the availability of complements.
c) the price of the good relative to total income.
d) the time available to adjust to the change in price
a) the availability of substitutes.
b) the availability of complements.
c) the price of the good relative to total income.
d) the time available to adjust to the change in price
answer
The availability of complements
question
A vertical demand curve reflects demand that is
answer
Perfectly Inelastic
question
Perfectly inelastic demand means that consumers
answer
will buy a certain quantity, regardless of price
question
An efficient market will produce the quantity where
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Marginal benefit = Marginal costs
question
Describe consumer surplus in a perfectly competitive market.
answer
The area below the demand curve and above the equilibrium price.
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When the benefits of producing a good or service spill over to other people, rather than just the buyer, the spillover is referred to as
answer
External Benefit
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In the graph above, what is the marginal cost of the 4th pizza?
answer
$9
question
If the market price is $3, what is the producer surplus?
answer
C + B + E
question
In the graph above, when a price ceiling is set at $1, what is the consumer surplus?
answer
A + B
question
In the above graph, what is the dead-weight loss associated with the price ceiling of $1. *
answer
D + E
question
When the benefits of producing a good or service spill over to other people, rather than just the buyer, the spillover is referred to as
answer
an external benefit
question
When production of a good has an external cost, which of the following is true about the market outcome?
answer
There will be overproduction relative to the efficient level
question
Eric goes to a jeweler to purchase a diamond ring. He doesn't know anything about how diamonds are evaluated. Because the jeweler has more knowledge, Eric is worried he won't get a quality diamond at a fair price. What do economists call this problem
answer
Asymmetric Information
question
It is possible that a person with homeowners' insurance will take fewer precautions to protect their home from damage than a person without insurance. The person with insurance knows that the damage will be covered under their policy. This problem is known as
answer
Moral Hazzard
question
The total utilities of consuming two bags of chips and three bags of chips are 25 and 34 respectively. What is the marginal utility of the 3rd bags of chips?
answer
9
question
George is consuming the combination of pizza and shakes identified by point C on the graph above. He could change his consumption and be equally satisfied if he moved to which of the following points.
answer
B or D
question
The blue line on the graph above is George's budget constraint. What combination of pizza and shakes should George choose to maximize his utility, given his budget?
answer
A
question
An increase in George's budget would
answer
shift his budget constraint to the right
question
Diminishing marginal utility means that
answer
total utility increases as marginal utility decreases
question
David spends all his budget to buy 3 tacos and one soda. Taco is $2 each and soda is $1.50 each. If marginal utility of soda is 15 and marginal utility of 3rd taco is 20, David
answer
is maximizing his utility
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Suppose you maximize your utility by consuming 3 slices of pizza and 2 ice cream cones. The price of pizza increases. Even if you were given enough income to afford the original bundle of goods, you are likely to choose to consume less pizza and more ice cream. Economist refer to this as the
answer
Substitution effect
question
What is the difference between economic profit and accounting profit?
answer
Implicit Cost
question
Chris runs a chili restaurant. His total revenue last year was $110,000. He paid $48,000 in rent, $42,000 in wages, and $20,000 in raw materials. Chris could have worked as a teacher and earned $50,000 per year. What are his accounting and economic profits respectively? *
answer
0; -50,000
question
To maximize profits, firms produce an output where marginal product of labor per dollar equals the marginal product of capital per dollar. Assume that the cost of labor is $20 an hour and its marginal product is 40. What should the marginal product of capital be if we assume the cost of capital of $40 an hour
answer
80
question
Theresa runs a factory that makes lie detectors in Detroit, Michigan. This month, Theresa's 34 workers produced 690 lie detectors. Suppose Theresa adds one more worker and, as a result, her factory's output increases to 700. Theresa's marginal product of labor from the last worker hired equals
answer
10
question
Marie owns a factory and her total cost was $20,000 for production of 500 units. Her total revenue was $ 40,000 and her explicit cost was $15,000. What was her average total cost last year?
answer
$40.00
question
Kathleen owns a firm, but she rents the building. In the short run, Kathleen's rent does not change as her production increases. She noticed her total cost changed from $20,000 to $20,100 when her production increased from 100 units to 101 units. What do economists call Kathleen's cost of producing one additional unit?
answer
Marginal Cost
question
When a firm's long-run average total cost falls as its plant size increases, the firm is experiencing
answer
economies of scale
question
In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit?
answer
Only Perfect Competition
question
Refer to the graph below, what is the profit maximizing output when the price is $30 for a perfectly competitive firm?
answer
38 Units
question
A perfectly competitive firm can
answer
sell all of its output at the prevailing market price
question
For a perfectly competitive firm, profit maximization occurs when output is such that
answer
MR= MC
question
From the below table, choose the profit maximizing output for a perfectly competitive firm.
answer
10
question
A monopolist can make an economic profit in the long run because of
answer
Barriers to entry
question
A monopoly firm will always choose to produce a price and quantity combination that is
answer
in the elastic range in the demand curve
question
The key idea behind price discrimination is to convert consumer surplus into
answer
Economic Profit
question
Which of the following is ALWAYS true when a single-price monopolist maximizes its profit?
a) P = MC
b) P = MR
c) MR = MC
d) MC = ATC
a) P = MC
b) P = MR
c) MR = MC
d) MC = ATC
answer
MR=MC
question
Refer to graph below, Identify the profit maximizing quantity and price for this monopolistically competitive firm. *
answer
Q1, C
question
The firm earns positive economic profit when
answer
P>ATC
question
An industry with a large number of firms, differentiated products, and free entry and exit is called
answer
Monopolistic Competition
question
What is the effect of advertising in monopolistic competitive market?
answer
Provides information and affects competition
question
The absence of barriers to entry in monopolistic competition means that in the long run firms
answer
make zero economic profit
question
A characteristic common to both monopolistic competition and perfect competition is
answer
Each market has many firms competiting
question
In an oligopoly, there are
answer
few firms and barriers to entry
question
The image below shows a pay-off matrix for McDonald's and Burger King. Each restaurant must decide whether to charge $5 or $7 for their burger. McDonald's profits are highlighted in green. Burger King's profits are highlighted in yellow.
Based on the table above, at the Nash equilibrium...
Based on the table above, at the Nash equilibrium...
answer
McDonald's will charge $5 and Burger King will charge $5.
question
What is an overt collusion among firms in an oligopoly market?
answer
Openly agreeing on price and output aimed at achieving monopoly profit
question
Using the data in the table below, the equilibrium quantity and equilibrium price for a cellular telephone is:
answer
c) 60,000 and $50.
question
17. The below figure shows the market for game day t-shirts. If the price of t-shirts is $10, then
a) there is a surplus and the price of t-shirts will rise
b) there is a shortage and the price of t-shirts will rise.
c) there is a shortage and the price of t-shirts will fall.
d) the market is in equilibrium.
a) there is a surplus and the price of t-shirts will rise
b) there is a shortage and the price of t-shirts will rise.
c) there is a shortage and the price of t-shirts will fall.
d) the market is in equilibrium.
answer
d) the market is in equilibrium.
question
18. The below figure shows the market for game day t-shirts. If the price of t-shirts is $12, then:
a) there is a shortage and the price of t-shirts will fall.
b) there is a shortage and the price of t-shirts will rise.
c) there is a surplus and the price of t-shirts will rise.
d) there is a surplus and the price of t-shirts will fall
a) there is a shortage and the price of t-shirts will fall.
b) there is a shortage and the price of t-shirts will rise.
c) there is a surplus and the price of t-shirts will rise.
d) there is a surplus and the price of t-shirts will fall
answer
d) there is a surplus and the price of t-shirts will fall
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