Microeconomics 2106 Final Exam Review

In January of 2014, a person made a personal budget.
-Microeconomics
-Macroeconomics

The Canadian unemployment rate was lower in January of 2014 than it was in January of 2012.
-Microeconomics
-Macroeconomics

A person blames inflation for the general increase in prices at the grocery stores throughout British Columbia.
-Microeconomics
-Macroeconomics

A person gets a raise at work.
-Microeconomics
-Macroeconomics

Thinking about scarcity in terms of the economic way of thinking, why does scarcity exist? Select the most complete explanation.
Scarcity:

Prices incorporate information about each statement except

Which statement is not likely to occur in a competitive free market economy?

Scarcity is

Colby lives in the U.S. and purchases a video game produced in Japan.

A Chinese consumer purchases a TV produced in China.

Tanesha lives in Tennessee and buys an orange grown in Florida.

A farmer in Iowa sells corn to a food processing plant in China.

ConocoPhillips, a U.S. based oil company, sells oil to oil refineries in Brazil and Mexico.

You have a part-time job that pays $8 per hour. Your manager has asked you to work four extra hours on Friday night, but you already have plans for dinner and a movie with a friend on Friday night.
Under what conditions will you choose to work on Friday night? Consider the economic way of thinking in answering this question; also assume that you are rational (even if you do not think you are rational) and can afford dinner and a movie.

It is Valentine's Day and Pierre wants to buy his girlfriend Madeline a dozen long‑stemmed roses to show his love for her. He walks into a new neighborhood flower store and reads a plaque next to the roses. Apparently, the roses were grown by farmers in Nairobi, Kenya. What was not mentioned on the plaque was that a shipping company packed them, a pilot flew them on a refrigerated plane, and a trucking company took them to the floral shop. The flower shop owner thought that since the town did not have a flower shop, she could capitalize on the market. Pierre buys a dozen roses from the shop for $60 and presents them to Madeline, much to her delight.

What main principle does this story best illustrate?

Which phrase best describes utility?
Utility is

How do economists measure utility?
Economists

During the Obama administration, the development of low‑cost batteries for electric cars received large amounts of federal funding via subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero‑emissions electric vehicles, where there is an upward‑sloping supply curve and a downward‑sloping demand curve.

In which direction will demand and supply shift?

During the Obama administration, the development of low‑cost batteries for electric cars received large amounts of federal funding via subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero‑emissions electric vehicles, where there is an upward‑sloping supply curve and a downward‑sloping demand curve.

What will happen to the equilibrium price?

When Andrew is in college he has a small income and has to make his own cheap coffee. After he graduates his income increases to a healthy $75,000 a year and he now buys Starbucks daily.

Andrew's demand for Starbucks coffee changed as a result of

When is it legal to pay workers in the United States an hourly rate that is less than the federal minimum wage?

How does an increase in the budget deficit of Bhutan affect its equilibrium interest rate?
The equilibrium interest rate

Which of the following is not a reason why negative consequences can result from efforts to control prices?

Various forms of capital are used in the production of final goods and services. However, the term financial capital market refers to

Which is true of the minimum wage in the United States?

Which has been shown to be true in the United States about changes in the minimum wage rate?

Andrina always spends 2020% of her income on gizmos. Assume that her income increases by some percentage while the price of gizmos remains constant, and that all gizmos cost the same. What is her income elasticity of demand, EI, for gizmos?

E1 equals

Total inefficiency caused by a tax is also known as

Governments that are interested in minimizing the efficiency costs of taxation should only tax goods where

Which example best represents perfectly inelastic supply?

Penny is a consumer with a tight budget. The share of her budget spent on goods and services is significant in determining how well she is able to respond to price changes.
Based on this criteria, for which good would you expect Penny's demand to be the most elastic?

Which statement is the best definition of the price elasticity of demand?

The government of the country of Burnination is trying to encourage its workers to work more. They first attempt an advertising campaign featuring Prime Minister Trogdor yelling at the camera and calling the viewers a bunch of lazy bums whose thatched‑roof cottages should be burned to the ground. This fails miserably. Finance Minister Pom Pom suggests an alternative policy of reducing the income tax rate.
What would you expect would be the most likely outcome of this policy?

Brayden receives some utility from consuming a frozen dinner (an inferior good) but would much rather purchase healthier food (a normal good). Suppose the price of a frozen dinner increases and the quantity that Brayden purchases increases. Assume that a frozen dinner is not a Giffen good.

Which effect causes Brayden's quantity demanded of a frozen dinner to decrease?

Brayden receives some utility from consuming a frozen dinner (an inferior good) but would much rather purchase healthier food (a normal good). Suppose the price of a frozen dinner increases and the quantity that Brayden purchases increases. Assume that a frozen dinner is not a Giffen good.

Which effect causes Brayden's quantity demanded of a frozen dinner to increase?

Why is economics built on the assumption that people are rational?

A firm's ___ are costs that increase as quantity produced increases. These costs often show ___by increasing at an increasing rate.

A firm's ___are costs that are incurred even if there is no output. In the short run, these costs ___as production increases.

Don't Fret, a guitar manufacturing firm, is deciding how to allocate its resources. Suppose that the marginal product of labor is 18 guitars per hour and that the marginal product of capital is 20 guitars per hour. Hiring another worker will cost Don't Fret $3 per hour and purchasing more capital will cost the equivalent of $5 per hour. Use the least-cost rule to answer the questions.

How should Don't Fret change its spending in order to produce at the lowest possible cost?

Don't Fret, a guitar manufacturing firm, is deciding how to allocate its resources. Suppose that the marginal product of labor is 18 guitars per hour and that the marginal product of capital is 20 guitars per hour. Hiring another worker will cost Don't Fret $3 per hour and purchasing more capital will cost the equivalent of $5 per hour. Use the least-cost rule to answer the questions.

In order to reach the least costly combination of resources, Don't Fret should

Which of the statements is true of the long‑run industry supply curve (LRIS)?

Which choice is not a characteristic of a competitive market?

In general, the market demand curve in a perfectly competitive market is perfectly elastic. T/F

In general, an individual firm in a perfectly competitive market faces a perfectly elastic demand curve. T/F

An individual firm in a perfectly competitive market can obtain a higher price for its product by reducing output. T/F

An individual firm in a perfectly competitive market must lower its price to sell more of its product. T/F

In a perfectly competitive market, average revenue is equal to the market price. T/F

In a perfectly competitive market, marginal revenue is equal to the market price. T/F

Which of the given factors is an assumption of perfect competition?

Identify the barrier to enter
a. Coca‑Cola's vast market share in the soft drink market:

China's control of the market for rare earths (a group of minerals used to produce electronics)

Pfizer's control of the production of Viagra:

The local utility company that can provide electricity to the entire market at a lower average cost than other producers:

Facebook's position in social media:

Which of the following describes rules created by governments that allow for exclusivity in sales, use, and production of an invention for a limited period?

Which of the following is a word, name, symbol or device that shows the creator of the good and can only be used by that firm?

Which of the following is a legal rule that prohibits copying of material in order to protect the rights of those responsible for the creation of the good?

Which of these scenarios is NOT an example of a barrier to entry?

Which restrictive practice is an example of bundling?

-Retailers sell an electric grill at a price of $5, significantly undercutting the market.
-A mobile phone manufacturer requires all retailers to sell its new phone at a price of at least $299.
-A unique supermarket chain sells only its self‑branded products.
-A supermarket offers a free pack of hot dog buns with a purchase of hot dogs for the Fourth of July.
-**None of the choices are correct.**

How can a kinked demand curve indicate that the firms in the oligopoly will continue to behave as a cartel and not have an incentive to deviate from the cartel?

Assuming that product differentiation is successful, which of the statements best describes how advertising can affect the demand curve for the monopolistically competitive firm?

Landscaping company owners in a county hold an annual meeting at a hotel. There, owners make contact with industry leaders, share cost-saving ideas, and set minimum prices for services in the coming year. Owners who set prices below these minimums are not invited to next year's meeting.

Landscaping company owners who attend the meeting.

Most hot dog carts in a city sell hot dogs for $3.00 each. Each stand makes comparable products, but each is independently owned and operated. The marginal cost of selling hot dogs on the street is around $1.00, but owners have maintained the $3.00 price point for several years. The cart owners are not in regular contact.

Hot dog vendors in. this city

Three friends start a bakery in the east side of a city. There is a higher demand for baked goods on the west side of the city, but the bakery's owners refrain from expanding there due the large number of well-established bakeries already there.

The east side bakery owners are

A city has two major nut vending companies. I.M. Nutz operates roasted nut carts on the north side of the city, while Go Go Nuts operates carts on the south side of the city. Both companies operate at high margins and have a robust distribution infrastructure that would allow them to operate city-wide, but each company operates exclusively on its end of town.

I.M. Nutz and Go Go Nuts

Given an equilibrium level of output in an oligopoly market, each firm may face a kinked demand curve because the firms

Suppose that in the market for cell phone service the number of competitors has dwindled until Cellaphone and SouzaPhone have become the only providers left in the nation. Seeking to boost their profits, the two companies secretly agree to a coordinated increase in their prices for cell phone minutes.

This practice is known as

Concentration ratios are used to gauge market structure and thus the degree of competition in an industry.
What are the greatest drawbacks of using only these measures to gauge market structure?

Regulation is most likely to occur in a market characterized as

Regulation is most likely to occur in a market with a Herfindahl-Hirschman Index (HHI) of

Regulation is more likely to occur in

The four-firm concentration ratio is useful for

Deregulation is characterized as

Which is not a feature of the four-firm concentration ratio?

As a result of the accounting fraud that led to the demise of Enron, what legislation was passed to protect investors by improving financial disclosures and preventing accounting fraud?

Identify the true statement.

Identify the true statement.

Identify the true statement.