Download Name: Micro Final Review 1. If resources are “scarce” it means that

Name: __________________________
Micro Final Review
1. If resources are “scarce” it means that they:
A) cannot provide enough goods or services to satisfy all human material wants and
needs.
B) have no opportunity cost.
C) are probably not valued by consumers.
D) have an unlimited supply.
2. The best measure of the opportunity cost of any choice is:
A) the monetary cost of that choice.
B) whatever you have given up to make that choice, even if no monetary costs are
involved.
C) the cost associated with not taking full advantage of the opportunity offered by that
choice.
D) your hourly wage.
3. Marginal analysis studies how individuals decide:
A) whether to live on the margin of society.
B) to do a bit more activity versus a bit less activity.
C) to analyze marginal businesses.
D) how much down payment to make when buying stocks.
4. Some Bears fans decide to leave the Patriots game after the 1st quarter in order to avoid the
post-game traffic (also because Jay Cutler threw 3 INTs in the 1st Quarter, making the score
Pats 28-0). The fans are:
A) not considering they have already paid the cost of their tickets.
B) making marginal decisions by comparing the cost of leaving early to the benefit of
leaving early.
C) thinking only about the benefits of avoiding traffic.
D) finally realizing how awful the Bears truly are.
Use the following to answer questions 5-7: Figure: Strawberries and Submarines
5. Suppose the economy is operating at point G. This implies that:
A) the economy can move to a point such as C only if it improves its technology.
B) the economy is experiencing unemployment and/or inefficient allocation of resources.
C) the economy lacks the resources to achieve a combination such as C.
D) people in this economy don't really like strawberries and submarines.
Page 1
6. As the economy moves from point A toward, say, point D, it will find that the opportunity
cost of each additional submarine:
A) falls.
B) rises.
C) remains unchanged.
D) doubles.
7. Suppose the economy is now operating at point C. Moving to point E would require that
the economy:
A) achieve full employment and an efficient allocation of resources.
B) eliminate its production of strawberries.
C) reduce its production of submarines.
D) improve its technology or increase the quantities of factors of production it has.
8. All points outside the production possibility frontier represent:
A) efficient production points.
B) inefficient production points.
C) nonfeasible production points.
D) economic growth.
9. In a single day, Sarah can produce 10 hamburgers while Abe can produce 5 hamburgers.
We then know that:
A) Sarah has a comparative advantage in making hamburgers.
B) Sarah has an absolute advantage in making hamburgers.
C) Abe has a comparative advantage in making hamburgers.
D) Abe has an absolute advantage in making hamburgers.
10. If the price of mozzarella cheese (an ingredient in pizza) declines due to a major
technological breakthrough in the dairy industry, there would be:
A) a decrease in the supply of pizza.
B) an increase in the supply of pizza.
C) an increase in the quantity of pizza supplied.
D) no change in the supply of pizza.
11. Which would not cause the supply curve to shift?
A) a change in technology
B) a change in factor costs
C) a change in the price of the good
D) a change in suppliers' expectations of prices
12. When the price of corn is rising, we would expect:
A) the quantity demanded for corn to be rising.
B) the quantity supplied of corn to be rising.
C) the demand for corn to be shifting inward.
D) the supply of corn to be shifting outward.
Page 2
Use the following to answer questions 13-16:
13. If the price of chocolate-covered peanuts is $0.60, the price will:
A) remain unchanged.
B) fall to $0.30.
C) fall to $0.50.
D) rise to $0.70.
14. The equilibrium quantity and the equilibrium price are ________ bags and ________.
A) 140; $0.40
B) 175; $0.60
C) 175; $0.80
D) 210; $0.50
15. If the price of chocolate-covered peanuts is $0.80, there is:
A) a surplus of 140 bags per month.
B) a shortage of 140 bags per month.
C) a surplus of 70 bags per month.
D) a shortage of 70 bags per month.
16. A shortage of 210 bags of chocolate-covered peanuts exists if the price is ________ per
bag.
A) $0.80
B) $0.60
C) $0.40
D) $0.30
17. Economists generally believe that a country should specialize in the production of a good
or service if:
A) the production possibility frontier is larger than that of any other country.
B) the production possibility frontier is smaller than that of any other country.
C) the country can produce the product using fewer resources than any other country.
D) the country can produce the product while forgoing fewer alternative products than
any other country.
18. If they produce only hamburgers, then in a single day Sarah can produce 10 hamburgers
while Abe can produce 5 hamburgers. If they only make milkshakes, then in a single day
Sarah can produce 10 milkshakes while Abe can produce 4 milkshakes. We then know that:
A) Sarah has an absolute advantage and a comparative advantage in making hamburgers.
B) Sarah has an absolute advantage and a comparative advantage in making milkshakes.
C) Abe has an absolute advantage and a comparative advantage in making hamburgers.
D) Abe has an absolute advantage and a comparative advantage in making milkshakes.
Page 3
19. If goods A and B are substitutes, a decrease in the price of good B will:
A) increase the demand for good A.
B) increase the demand for good B.
C) decrease the demand for good A.
D) increase the demand for good B and decrease the demand for good A.
20. If goods A and Z are complements, an increase in the price of good Z will:
A) increase the demand for good A.
B) decrease the demand for good A.
C) decrease the demand for good Z.
D) decrease the demand for good A and decrease the demand for good Z.
21. A decrease in the price of a good will result in:
A) an increase in demand.
B) an increase in supply.
C) an increase in the quantity demanded.
D) more being supplied.
22. The demand for meals at a local Applebee's will fall if:
A) the Olive Garden offers a 10% discount coupon in the local newspaper.
B) the price of a meal at Applebee's rises.
C) local incomes increase and Applebee's is a normal good.
D) people finally realize that Applebee's is terrible. Seriously, go anywhere else!!
23. The demand curve for videos has shifted to the right. What could have caused it?
A) a fall in the price of videos
B) an increase in the price of videos
C) an increase in the supply of videos
D) an increase in the incomes of buyers
Use the following to answer questions 24-26: Figure: Market for Hamburgers
24. The figure shows the weekly market for hamburgers at the Tasty Burger Palace. If the price
of a burger is $2, consumer surplus will equal:
A) $650.
B) $400.
C) $225.
D) $450.
Page 4
25. (Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at
the Tasty Burger Palace. If the Palace sells 400 burgers, consumer surplus will equal:
A) $650.
B) $400.
C) $225.
D) $450.
26. (Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at
the Tasty Burger Palace. If the Palace lowers the price of a burger from $2 to $1.50, the
gain in consumer surplus to consumers who are persuaded to buy at the lower price (and
who were not buying when the price was $2) is equal to:
A) $100.
B) $75.
C) $50.
D) $25.
Use the following to answer questions 27-30:
27. (Table: Producer Surplus and Phantom Tickets) Given the information in the table, if the
price for Phantom tickets is $55, which student has the highest individual producer surplus?
A) Tim
B) Laura
C) Rick
D) Ralph
28. Given the information in the table, if the price for Phantom tickets is $140, and there is no
other market for tickets, total producer surplus for these five students is:
A) $139.
B) $110.
C) $40.
D) $379.
29. (Table: Producer Surplus and Phantom Tickets) Given the information in the table, if the
price for Phantom tickets is $55, total producer surplus for the five students is:
A) $54.
B) $79.
C) $84.
D) $64.
Page 5
30. (Table: Producer Surplus and Phantom Tickets) Given the information in the table, if these
students can sell their Phantom tickets for only $5, then:
A) Tim will be the only student not to sell his ticket.
B) Laura, Whitney, Ralph, and Rick will sell their tickets.
C) the total producer surplus for the five students will be $4.
D) the total producer surplus for the five students will be $330.
31. The likely result of a price floor is:
A) a surplus of the good at a price above the market equilibrium price.
B) a shortage of the good at a price below the market equilibrium price.
C) a surplus of the good at a price below the market equilibrium price.
D) a shortage of the good at a price above the market equilibrium price.
32. A persistent shortage may occur if:
A) the government imposes a price ceiling.
B) a price floor is imposed.
C) demand keeps falling.
D) supply shifts rightward.
Use the following to answer question 33: Figure: Market for Hybrid Cars
33. Identify the area(s) that represent deadweight loss if there is a binding price floor.
A) a + b + c
B) b + c + d + e
C) c + e
D) c
34. The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price
elasticity of demand is equal to ________ and demand is described as ________.
A) 0.2; inelastic
B) 5; inelastic
C) 0.2; elastic
D) 5; elastic
35. The demand for textbooks is price inelastic. Which of the following would explain this?
A) Many alternative textbooks can be used as substitutes.
B) Students have a lot of time to adjust to price changes.
C) Textbook purchases consume a large portion of most students' income.
D) The good is a necessity.
Page 6
36. A perfectly price-inelastic demand curve is:
A) horizontal.
B) downward-sloping.
C) upward-sloping.
D) vertical.
37. On a linear demand curve:
A) demand is elastic at high prices.
B) demand is inelastic at high prices.
C) elasticity is the same at all points on the demand curve.
D) demand is elastic at low prices.
38. A linear demand curve:
A) has a constant price elasticity of demand.
B) has price elasticity of demand equal to one.
C) has price elasticity of demand that is positive.
D) can have both elastic and inelastic price elasticities of demand.
39. A good is likely to have an inelastic demand curve if:
A) the consumer has significant time to respond to the price change.
B) the good has few available substitutes.
C) the good is a luxury.
D) the good accounts for a large share of consumer income.
40. If the University of Michigan increases the price of football tickets, this will result in
increasing revenues if the price elasticity of demand is:
A) price-inelastic.
B) price-elastic.
C) equal to 1.
D) perfectly elastic.
41. The principle of diminishing marginal utility means that when Sarah eats pizza, her
satisfaction from the second slice of pizza is probably:
A) greater than that from the first.
B) equal to that from the first.
C) less than that from the first.
D) not comparable to that from the first.
Use the following to answer questions 42-44:
42. (Table: Utility II) The marginal utility for the sixth unit is:
A) –25.
B) 0.
C) 25.
D) –15.
Page 7
43. (Table: Utility II) Total utility is maximized at the ________ unit.
A) first
B) second
C) fourth
D) sixth
44. (Table: Utility II) Marginal utility is zero for the ________ unit.
A) first
B) second
C) third
D) fifth
45. The short run is defined as a:
A) period of time less than 1 year.
B) period of time less than 6 months.
C) period in which some inputs are considered to be fixed in quantity.
D) time period in which some inputs are fixed, but it cannot exceed 1 year.
46. In the long run:
A) all inputs are fixed.
B) inputs are neither variable nor fixed.
C) at least one input is variable and one input is fixed.
D) all inputs are variable.
Use the following to answer questions 47-48:
47. (Table: Production of Bagels) The marginal product of the fifth worker is:
A) 5,000.
B) 9,000.
C) 10,000.
D) 12,000.
48. Diminishing marginal returns begin with the addition of the ________ worker.
A) third
B) fourth
C) fifth
D) sixth
Page 8
Use the following to answer questions 49-50: Figure and Table: Variable, Fixed, and Total Costs
49. In the figure, the marginal cost of increasing production from 51 to 64 bushels of wheat is:
A) $16.
B) $15.38.
C) $12.50.
D) $18.75.
50. In the figure, when 96 bushels of wheat are produced, average fixed cost is ________,
average variable cost is ________, and average total cost is ________.
A) $7.84; $11.76; $19.60
B) $133.33; $200; $333.33
C) $4.17; $16.67; $20.83
D) $5.33; $13.33; $18.67
51. When an increase in the firm's output reduces its long-run average total cost, it experiences:
A) increasing returns to scale (economy in scale).
B) decreasing returns to scale.
C) constant returns to scale.
D) variable returns to scale.
52. An assumption of the model of perfect competition is:
A) discrimination.
B) difficult entry and exit.
C) many buyers and sellers.
D) limited information.
Page 9
53. If all firms in an industry are price-takers, then:
A) each firm can take the price that it wants to charge and sell at this price, provided it is
not too different from the prices other firms are charging.
B) each firm takes the market price as given for its current output level, recognizing that
the price will change if it alters its output significantly.
C) an individual firm cannot alter the market price even if it doubles its output.
D) the market sets the price, and each firm can take it or leave it (by setting a different
price).
54. If a perfectly competitive firm is producing a quantity that generates MC < MR, then profit:
A) is maximized.
B) can be increased by increasing production.
C) can be increased by decreasing production.
D) can be increased by decreasing the price.
55. If a perfectly competitive firm is producing a quantity that generates MC = MR, then profit:
A) is maximized.
B) can be increased by increasing production.
C) can be increased by decreasing production.
D) can be increased by decreasing the price.
56. In the short run, if AVC < P < ATC, a perfectly competitive firm:
A) produces output and earns an economic profit.
B) produces output and incurs an economic loss.
C) does not produce output and earns an economic profit.
D) does not produce output and earns zero economic profit.
57. In the short run, if P < AVC, a perfectly competitive firm:
A) produces output and earns an economic profit.
B) produces output and incurs an economic loss.
C) does not produce output and earns an economic profit.
D) does not produce output and incurs an economic loss.
58. A monopoly is likely to ________ and ________ than a perfectly competitive firm.
A) produce more; charge more
B) produce less; charge more
C) produce more; charge less
D) produce less; charge less
59. One of the major differences between a monopolist and a purely competitive firm is that
the monopolist has a ________ demand curve, while the purely competitive firm has a
________ demand curve.
A) downward-sloping; perfectly elastic
B) perfectly inelastic; perfectly elastic
C) downward-sloping; perfectly inelastic
D) perfectly elastic; downward-sloping
Page 10
Use the following to answer questions 60-62: Figure: Computing Monopoly Profit
60. The profit-maximizing price is ________ and will generate total economic profit of _____.
A) P2; EF
B) P3; the rectangle P1P2FG
C) P3; the rectangle P2P3EF
D) P3; EF
61. (Figure: Computing Monopoly Profit) In order to obtain maximum profits, the monopoly
should produce the output determined by point ________.
A) G
B) N
C) H
D) K
62. (Figure: Computing Monopoly Profit) Producing at point N would:
A) result in MR = MC.
B) result in positive economic profits.
C) never be profit-maximizing, since at this output MR < 0 and MC > 0.
D) result in the firm breaking even.
63. In order to maximize profits, an airline will offer ________ prices to customers with
________ demand.
A) higher; inelastic
B) higher; elastic
C) lower; inelastic
D) the lowest; the least
64. Which of the following is true regarding monopolies?
A) Monopolies produce too much and charge too much from the standpoint of
efficiency.
B) Monopolies usually are economically efficient because they have economic profits
with which to work.
C) Monopolies produce too little and charge too much from the standpoint of efficiency.
D) Monopolies create an efficiency problem but are not associated with an equity
problem.
Page 11
65. Oligopoly is a market structure characterized by:
A) independence in decision making.
B) a horizontal demand curve.
C) a small number of interdependent firms.
D) relatively easy entry and exit.
66. Which of the following factors increases the likelihood that oligopolists collude?
A) There are a large number of firms in the industry.
B) A firm and its rivals are currently operating at maximum productive capacity.
C) One firm has a significant cost advantage over its rivals.
D) A firm and its rivals are currently operating at maximum productive capacity and one
firm has a significant cost advantage over its rivals.
Use the following to answer questions 67-68:
Figure: Payoff Matrix for Ajinomoto and ADM
67. (Figure: Payoff Matrix for Ajinomoto and ADM) Given the payoff matrix in the figure, the
optimal combination for maximum combined profit is for:
A) each firm to produce 30 million pounds.
B) each firm to produce 40 million pounds.
C) ADM to produce 30 million pounds and for Ajinomoto to produce 40 million
pounds.
D) ADM to produce 40 million pounds and for Ajinomoto to produce 30 million
pounds.
68. (Figure: Payoff Matrix for Ajinomoto and ADM) Given the payoff matrix in the figure, the
Nash equilibrium combination is for:
A) each firm to produce 30 million pounds.
B) each firm to produce 40 million pounds.
C) ADM to produce 30 million pounds and for Ajinomoto to produce 40 million
pounds.
D) ADM to produce 40 million pounds and for Ajinomoto to produce 30 million
pounds.
Page 12
69. Oligopolies are industries:
A) dominated by one seller who shares market power equally with all other sellers.
B) made up of few firms, each with some market power and therefore aware of their
interdependence with the other firms.
C) composed of many buyer and sellers, all of whom are price-takers.
D) that are the same as monopolistically competitive industries except that they sell a
standardized product.
70. The women's dress industry is monopolistically competitive. This means that the following
condition applies to this industry:
A) There are thousands of dress suppliers, all selling identical products.
B) Dresses tend to be differentiated among the many sellers serving this market.
C) There is freedom of entry but not exit in this industry.
D) Prices tend to be lower than if the dress industry approximated perfect competition.
71. To maximize profit, a monopolistically competitive firm should produce the level of output
at which:
A) marginal revenue equals marginal cost.
B) price equals marginal cost.
C) price equals total cost.
D) marginal revenue equals price.
Use the following to answer question 72: Figure: Monopolistic Competition II
72. The accompanying figure shows the demand, marginal revenue, marginal cost, and average
total cost curves for Pat's Pizza Parlor, a monopolistic competitor in the food-to-go
industry. The optimal level of output for Pat's Pizza Parlor is ________ and the profitmaximizing price is ________.
A) 350; $3.50
B) 350; $7.00
C) 590; $5.60
D) 500; $5.50
Page 13
73. The demand curve for a firm under monopolistic competition is:
A) downward sloping, unlike the horizontal demand curve facing a perfectly competitive
firm.
B) horizontal, unlike the downward-sloping demand curve facing a perfectly competitive
firm.
C) horizontal, the same as that facing a perfectly competitive firm.
D) downward sloping, the same as that facing a perfectly competitive firm.
74. In monopolistic competition:
A) to maximize profits MR = MC, yet P > MC.
B) people would be better off if output were reduced.
C) output could be increased without an increase in total cost.
D) to maximize profits MR = MC, and people would be better off if output were
reduced.
75. A monopolistically competitive firm is operating in the short run, is operating at the
optimal level of output, and is earning positive economic profits. Which of the following
describes how this firm will adjust in the long run?
A) Entry of new firms shifts the firm's demand and marginal revenue curves leftward,
decreasing the firm's level of output, and decreasing the price the firm can charge until
price equals average total cost.
B) Entry of new firms shifts the firm's demand and marginal revenue curves leftward,
decreasing the firm's level of output, and increasing the price the firm can charge until
price equals average total cost.
C) Entry of new firms shifts the firm's marginal cost and average cost curves downward,
decreasing the firm's level of output, and decreasing the price the firm can charge until
price equals average total cost.
D) Exit of firms shifts the firm's demand and marginal revenue curves rightward,
increasing the firm's level of output, and increasing the price the firm can charge until
price equals average total cost.
76. Which of the following is(are) correct about celebrity spokespersons advertising products?
A) Celebrities are better informed about the relative merits of different products than the
rest of us.
B) Celebrity advertising signals consumers that the product is reliable, because the firm is
willing to pay the high fees associated with hiring a celebrity.
C) Consumers assume that the celebrity has researched the product and that the claims
being made on his or her behalf are true.
D) None of the statements are correct.
77. An externality is said to exist when:
A) individuals impose costs or benefits on others but have no incentive to take these
costs and benefits into account.
B) individuals impose costs or benefits on others, and the market provides incentives to
take these costs and benefits into account.
C) individual actions are affected by external forces; for example, the loss of U.S. jobs
due to competition from abroad is an externality.
D) individual actions are affected by government policies (such as taxes) that are
externally imposed on the market.
Page 14
78. The Coase theorem states that in the presence of externalities, a market economy will:
A) always reach an efficient solution.
B) never reach an efficient solution.
C) reach an efficient solution if transaction costs are sufficiently low.
D) reach an efficient solution only in the case of government regulation.
79. Which of the following best describes a negative externality?
A) Your neighbor loves to bake bread and always brings you a loaf fresh and hot from
the oven.
B) Your neighbor has an ornamental pond that breeds mosquitoes.
C) Your neighbor has invested in beautiful landscaping, increasing the value of all houses
on the block.
D) Your neighbor has a pool and has given you an open invitation to come over and
swim.
80. Which of the following is an example of a government solution to externalities?
A) The city government imposes rent control. The externality is that the quantity demand
for housing exceeds quantity supply at the current price.
B) The federal government imposes a minimum wage. The externality is that firms pay
too little to their workers.
C) The government offers free childhood immunizations. The externality is that an
immunized child cannot transmit disease to others.
D) The federal government provides national defense. The externality is that people can't
be excluded from national defense even if they don't pay for it.
81. Television programs are nonrival because:
A) the supplier cannot prevent consumption by people who do not pay for it.
B) more than one person can consume the same unit of the good at the same time.
C) individuals ignore the effect their use has on the amount of the resource remaining for
others.
D) the market suffers from inefficiently low consumption.
82. A public good is a good or service for which exclusion is:
A) possible and which is rival in consumption.
B) possible and which is nonrival in consumption.
C) not possible and which is rival in consumption.
D) not possible and which is nonrival in consumption.
83. The best example of a common resource is:
A) public education.
B) a municipal library.
C) clean water.
D) cable television broadcasting.
84. The best example of an artificially scarce good is:
A) legal services.
B) national defense.
C) a municipal library.
D) cable television broadcasting.
Page 15
85. A private good is a good or service for which exclusion is:
A) possible and which is rival in consumption.
B) possible and which is nonrival in consumption.
C) not possible and which is rival in consumption.
D) not possible and which is nonrival in consumption.
Page 16