question
If prices are P1=3 and P2=2 and the consumer has M=75, which bundle (x1,x2) is NOT affordable?
a. (4,5)
b. (15,16)
c. (12,13)
d. (20,5)
a. (4,5)
b. (15,16)
c. (12,13)
d. (20,5)
answer
b. (15,16)
question
When parameters like income (M) and Price (P1 and P2) change, the budget line usually changes as well. If a consumer's income increases while prices remain unchanged, this will
a. Shift the budget line out (up and to the right)
b. Rotate the budget line counterclockwise
c. Have no effect on the budget line
d. Shift the budget line in (down and to the left)
a. Shift the budget line out (up and to the right)
b. Rotate the budget line counterclockwise
c. Have no effect on the budget line
d. Shift the budget line in (down and to the left)
answer
d. Shift the budget line in (down and to the left)
question
If both prices double, this will
a. Shift the budget line out (up and to the right)
b. Rotate the budget line counterclockwise
c. Have no effect on the budget line
d. Shift the budget line in (down and to the left)
a. Shift the budget line out (up and to the right)
b. Rotate the budget line counterclockwise
c. Have no effect on the budget line
d. Shift the budget line in (down and to the left)
answer
d. Shift the budget line in (down and to the left)
question
When talking about consumer choice, we make a lot of assumptions about preferences. In particular, we make two very important assumptions to ensure that we have well-behaved preferences: 1. More is better (Monotonic Preferences) and 2. Averages are Preferred to Extremes (Convex Preferences). Which of the following sets of preferences violates our idea of well-behaved preferences?
a. (3,3) > (2,2)
b. (0,24) ~(24,0) and (12,12) > (0,24)
c. (5,5) > (13,13)
d. (6,6) >= (6,6)
a. (3,3) > (2,2)
b. (0,24) ~(24,0) and (12,12) > (0,24)
c. (5,5) > (13,13)
d. (6,6) >= (6,6)
answer
c. (5,5) > (13,13)
question
When a consumer makes an optimal choice, he chooses the
a. Cheapest bundle
b. Most expensive bundle
c. Bundle that gives him the highest utility and is affordable
d. Most preferred bundle without considering his budget
a. Cheapest bundle
b. Most expensive bundle
c. Bundle that gives him the highest utility and is affordable
d. Most preferred bundle without considering his budget
answer
c. Bundle that gives him the highest utility and is affordable
question
Demand Functions are very convenient when dealing with consumer choice. They tell us
a. How much the consumer is willing to give up of the good to obtain one extra unit of the other good
b. How much of a good the consumer can afford but nothing about what he will choose
c. The optimal amount of a good given prices and income of the consumer
d. The amount of money the consumer has to work with
a. How much the consumer is willing to give up of the good to obtain one extra unit of the other good
b. How much of a good the consumer can afford but nothing about what he will choose
c. The optimal amount of a good given prices and income of the consumer
d. The amount of money the consumer has to work with
answer
c. The optimal amount of a good given prices and income of the consumer
question
Suppose A, B, and C are different consumption bundles. Which set of preferences violates the transitivity axiom?
a. A~B~C
b. A>B, B>C, and A>C
c. A~B and B>C
d. A>B, B>C, and C>A
a. A~B~C
b. A>B, B>C, and A>C
c. A~B and B>C
d. A>B, B>C, and C>A
answer
d. A>B, B>C, and C>A
question
Suppose A, B, and C are different consumption bundles and A and B are on the same indifference curve, but C is on a different indifference curve. If the consumer gets 20 utility from bundle B and 40 utility from bundle C, how much uitility does the consumer get from bundle A?
a. 20
b. 40
c. -40
d. 60
a. 20
b. 40
c. -40
d. 60
answer
a. 20
question
Firms often have many ways to produce a given level of output. However, since inputs are costly, they are usually concerned with producing the most output they can. Therefore, a firm's production function y=f(x1,x2) is
a. The set of all combinations of inputs and outputs that comprise a feasible way to produce
b. A function that gives the maximum amount of output from a given amount of inputs
c. A function that gives firm's profit at each level of output
d. A function that measures the cost for the firm to produce
a. The set of all combinations of inputs and outputs that comprise a feasible way to produce
b. A function that gives the maximum amount of output from a given amount of inputs
c. A function that gives firm's profit at each level of output
d. A function that measures the cost for the firm to produce
answer
b. A function that gives the maximum amount of output from a given amount of inputs
question
A firm makes railroad tracks using metal rails and wooden planks. To make each segment of railroad track, the firm must use exactly two metal rails and ten wooden planks. Any more of either resource does not help. What kind of technology is the firm using?
a. Cobb-Douglas
b. Perfect Substitutes
c. Fixed Proportions
d. Indifference Curves
a. Cobb-Douglas
b. Perfect Substitutes
c. Fixed Proportions
d. Indifference Curves
answer
c. Fixed Proportions
question
The difference between short-run and the long-run is that
a. In the short-run, the firm has some inputs that are fixed and cannot be changed
b. In the long-run, the firm maximizes profit while in the short-run it maximizes revenue
c. In the long-run, the firm will maximize cost instead of profit
d. In the short-run, the firm must produce a fixed level of output y
a. In the short-run, the firm has some inputs that are fixed and cannot be changed
b. In the long-run, the firm maximizes profit while in the short-run it maximizes revenue
c. In the long-run, the firm will maximize cost instead of profit
d. In the short-run, the firm must produce a fixed level of output y
answer
a. In the short-run, the firm has some inputs that are fixed and cannot be changed
question
A firm's cost function
a. Is maximized when solving for the optimal level of output y for the firm
b. Gives the minimum amount of revenue the firm will accept for a given level of output y
c. Is irrelevant when determining the profit for the firm
d. Gives the lowest possible cost of producing given output y
a. Is maximized when solving for the optimal level of output y for the firm
b. Gives the minimum amount of revenue the firm will accept for a given level of output y
c. Is irrelevant when determining the profit for the firm
d. Gives the lowest possible cost of producing given output y
answer
d. Gives the lowest possible cost of producing given output y
question
If a firm's production function has increasing returns to scale (IRTS), then its average cost (AC) will
a. Increase as output increases
b. Decrease as output increases
c. Stay Constant as output increases
d. Increase or decrease, depending in its other characteristics.
a. Increase as output increases
b. Decrease as output increases
c. Stay Constant as output increases
d. Increase or decrease, depending in its other characteristics.
answer
b. Decrease as output increases
question
If we graph the Marginal Cost curve (MC), the Average Variable Cost curve (AVC), and the Average Cost curve (AC) on the same graph, we will see that
a. The MC curve never intersects either of the other curves
b. The AVC curve is always above the AC curve
c. The MC curve is tangent to the AC curve
d. The MC curve intersects both AC and AVC curves at their lowest points
a. The MC curve never intersects either of the other curves
b. The AVC curve is always above the AC curve
c. The MC curve is tangent to the AC curve
d. The MC curve intersects both AC and AVC curves at their lowest points
answer
d. The MC curve intersects both AC and AVC curves at their lowest points
question
When a firm is in perfect competition, we know
a. That it is the only firm in the market
b. That the firm will only set the price, not its output
c. That the firm will only set its output, not its price
d. That the firm has a large amount of power over the market price
a. That it is the only firm in the market
b. That the firm will only set the price, not its output
c. That the firm will only set its output, not its price
d. That the firm has a large amount of power over the market price
answer
c. That the firm will only set its output, not its price
question
A firm is considered shutdown when it produces output y=0. In a perfectly competitive market, why might a firm not shut down (produce output y>0) even if it is taking a loss (earning negative profit)?
a. A firm cannot not shut down in the short-run
b. A firm might not want to give up its market share
c. A firm in a perfectly competitive market cannot set its output
d. a firm can cover some of the Fixed Costs (FC) as long as Average Variable Cost (AVC) is less than the price of output
a. A firm cannot not shut down in the short-run
b. A firm might not want to give up its market share
c. A firm in a perfectly competitive market cannot set its output
d. a firm can cover some of the Fixed Costs (FC) as long as Average Variable Cost (AVC) is less than the price of output
answer
d. a firm can cover some of the Fixed Costs (FC) as long as Average Variable Cost (AVC) is less than the price of output
question
The supply curve of a firm in a perfectly competitive market is
a. The AC curve
b. Only the part of the AVC curve below the FC curve
C. Only the part of the MC curve above the AVC curve
d. Only the part of the MC curve above the FC curve
a. The AC curve
b. Only the part of the AVC curve below the FC curve
C. Only the part of the MC curve above the AVC curve
d. Only the part of the MC curve above the FC curve
answer
C. Only the part of the MC curve above the AVC curve
question
Market Demand is
a. The sum of all individual demands in a market
b. The product of all individual demands in a market
c. The demand of the richest consumer
d. A consumer's Marginal Cost curve
a. The sum of all individual demands in a market
b. The product of all individual demands in a market
c. The demand of the richest consumer
d. A consumer's Marginal Cost curve
answer
a. The sum of all individual demands in a market
question
The inverse demand function P(X) is
a. A function that measures the fixed cost for a firm
b. A function that measures the level of utility the consumer receives for a given output X
c. A function that measures what the market price for a good has to be for X units of it to be demanded
d. Always upward sloping
a. A function that measures the fixed cost for a firm
b. A function that measures the level of utility the consumer receives for a given output X
c. A function that measures what the market price for a good has to be for X units of it to be demanded
d. Always upward sloping
answer
c. A function that measures what the market price for a good has to be for X units of it to be demanded
question
Suppose a firm is interested in increasing its price on the good it sells. it does some market research and discovers that price elasticity of demand is E= -3. From this, the firm knows that
a. Demand is inelastic, so the quantity demanded wont respond too much to a price increase
b. Demand is elastic, so the quantity demanded will be very responsive to the price increase
c. Demand is unit elastic, so the quantity demanded will change by the exact same proportion that the price does
d. Demand is inelastic, so the quantity demanded wont change at all
a. Demand is inelastic, so the quantity demanded wont respond too much to a price increase
b. Demand is elastic, so the quantity demanded will be very responsive to the price increase
c. Demand is unit elastic, so the quantity demanded will change by the exact same proportion that the price does
d. Demand is inelastic, so the quantity demanded wont change at all
answer
b. Demand is elastic, so the quantity demanded will be very responsive to the price increase
question
Which of the following goods is most likely to have very inelastic demand?
a. Apples
b. Life-saving medicine
c. Cell Phones
d. Running Shoes
a. Apples
b. Life-saving medicine
c. Cell Phones
d. Running Shoes
answer
b. Life-saving medicine
question
What is quantity tax?
a. A tax levied as a percentage of the units sold
b. A tax levied as a fixed amount regardless of how many units are sold
c. A tax levied only on consumers, not producers
d. A tax levied per unit bought or sold
a. A tax levied as a percentage of the units sold
b. A tax levied as a fixed amount regardless of how many units are sold
c. A tax levied only on consumers, not producers
d. A tax levied per unit bought or sold
answer
d. A tax levied per unit bought or sold
question
When a tax is imposed on a market, it is usually imposed on either the consumers (pay it when they buy a good) or on the producers (pay it when they make a sale). What effect does imposing the tax on producers have relative to imposing it on the consumers?
a. If the tac is imposed on producers, supply will increase, increasing the price and output, whereas it would increase demand if imposed on consumers
b. The difference is that the government gets more revenue from a tax on producers than a tax on consumers
c. There is no difference: the end result is exactly the same
d. A tax imposed on producers is more disruptive to the market
a. If the tac is imposed on producers, supply will increase, increasing the price and output, whereas it would increase demand if imposed on consumers
b. The difference is that the government gets more revenue from a tax on producers than a tax on consumers
c. There is no difference: the end result is exactly the same
d. A tax imposed on producers is more disruptive to the market
answer
c. There is no difference: the end result is exactly the same
question
When a tax is imposed on a market, who bears more of the tax burden between producers and consumers?
a. Producers
b. Consumers
c. Whoever the tax is imposed on
d. Whoever has less responsiveness to changes in price
a. Producers
b. Consumers
c. Whoever the tax is imposed on
d. Whoever has less responsiveness to changes in price
answer
d. Whoever has less responsiveness to changes in price
question
What is Dead Weight Loss of a tax?
a. The lost value to society due to the reduction in sales of a good because of a tax
b. The government revenue, which directly reduces no-tax Consumer Surplus and Producer Surplus
c. Producer Surplus, since it could ideally be added to Consumer Surplus instead
d. The opportunity cost of not imposing a larger tax that would generate more government revenue
a. The lost value to society due to the reduction in sales of a good because of a tax
b. The government revenue, which directly reduces no-tax Consumer Surplus and Producer Surplus
c. Producer Surplus, since it could ideally be added to Consumer Surplus instead
d. The opportunity cost of not imposing a larger tax that would generate more government revenue
answer
a. The lost value to society due to the reduction in sales of a good because of a tax
question
What is the Nash Equilibrium of the Prisoner's Dilemma?
a. Both prisoners will stay quiet since that is the best overall outcome for both of them
b. Both will testify against the other since testify is the dominant strategy
c. Alice will testify and Bob will stay quiet because it only makes sense for one person to testify in this case
d. There is no Nash Equilibrium in pure strategies for the Prisoner's Dilmma
a. Both prisoners will stay quiet since that is the best overall outcome for both of them
b. Both will testify against the other since testify is the dominant strategy
c. Alice will testify and Bob will stay quiet because it only makes sense for one person to testify in this case
d. There is no Nash Equilibrium in pure strategies for the Prisoner's Dilmma
answer
b. Both will testify against the other since testify is the dominant strategy
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