ECN 2110 Week 8 Quiz 2

ECN 2110 Week 8 Quiz 2 | Baker College

Microeconomics Final Exam

Question 1

Scarcity implies that:

·         consumers would be willing to purchase the same quantity of a good at a higher price.

·         it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available. 

·         at the current market price, consumers are willing to purchase more of a good than suppliers are willing to produce. 

·         consumers are too poor to afford the goods and services available.

Question 2 

"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is: 

·         $0

·         $4

·         $40

·         $44

Question 3 

The _________ is the only price where quantity demanded is equal to quantity supplied. 

·         equilibrium price

·         horizontal axis intercept

·         vertical axis intercept

·         market price

Question 4 

Refer to above table. Suppose that D1 and S1 are the prevailing demand and supply curves for a product. If the demand schedule changes from D1 to D2, then:

·         equilibrium price decreases from $6 to $4.

·         equilibrium quantity decreases from 15 to 13.

·         equilibrium quantity increases from 13 to 18.

·         equilibrium price increases from $6 to $8

Question 5 

Whenever there is a surplus at a particular price, the quantity sold at that price will equal: 

   (quantity demanded plus quantity supplied)/2.

·         B. the quantity supplied at that price.

·         C. the quantity supplied minus the quantity demanded.

·         D. the quantity demanded at that price.

Question 6 

Demand is said to be __________ when the quantity demanded changes at the same proportion as the price. 

·         elastic

·         unit elastic

·         inelastic

·         independent

Question 7 

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi’s demand curve? 

·         0.1

·         0.8

·         1.0

·         10.0

Question 8 

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

·         increasing the price of game tickets because demand is inelastic.

·         not changing the price of game tickets because demand is unit elastic.

·         increasing the price of game tickets because demand is elastic.

·         decreasing the price of game tickets because demand is elastic.

Question 9 

In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts: 

·         are the negative result of a change in wage levels and a higher work effort.

·         the result of personal preferences and intertemporal budget constraints.

·         are being offset by negative savings or less savings in other kinds of accounts.

·         the result of a higher interest rates and preferences about present consumption. 

Question 10 

Molly attends college and works part-time job as a telemarketer. She can work up to 40 hours each week at her job, which pays $8 per hour. The table below shows her utility from different levels of leisure and income. Molly is currently working 20 hours per week. If she decides to work 30 hours instead, then her marginal utility loss from having less leisure is:

Hours of Leisure               Total Utility from Leisure              Income Total Utility from Income

0              0              0              0

5              18           40           30

15           34           80           54

15           48           120         72

20           56           160         81

25           60           200         87

30           62           240         90

                                280         92

·         18

·         34

·         3

·         6 

Question 11 

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________.

·         accounting profit; excluding opportunity cost

·         accounting profit; including opportunity cost

·         economic profit; excluding opportunity cost

·         opportunity cost; including economic profit

Question 12

A situation where the level of output, scale and average costs are all rising is called 

·         decreasing returns to scale

·         diseconomies of scale

·         diminishing returns to scale

·         both a and b are correct

Question 13

Which of the following should typically be ignored because spending has already been made

and cannot be changed? 

·         variable costs

·         t!   B. sunk costs

·         marginal costs

·         average marginal costs 

Question 14 

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was

·         $1.00

·         $3.00

·         $4.00

·         $7.00

Question 15 

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

·         downward-sloping; more costly to produce

·         upward-sloping; more costly to produce

·         downward-sloping; less costly to produce

·         upward-sloping; less costly to produce

Question 16

Quantity              Cost (in dollars) Fixed Costs (in dollars)   Total Costs (in dollars)    Average variable costs (in dollars per unit)                Average variable costs (in dollars per unit)           Marginal costs (in dollars per unit)

0              0              40           40           --             --             --

1              1              40           55           15           55           15

2              35           40           75           17.5        37.5        20

3              60           40           100         20           33.3        25

4              90           40           130         22.5        32.5        30

5              125         40           155         25           31           35

6              160         40           200         26.6        33.3        40

If the firm sells 5 units at a price of $30 each, then the marginal unit produced

·         costs more than the average cost.

·         is subtracting from profits.

·         costs the same as the average cost.

·         is adding to profits.

Question 17 

The term _______________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product. 

·         price setter

·         business entity

·         price taker

·         trend setter

Question 18

If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?

·         price of competing products

·         size of competing products

·         purchaser's opportunity cost

·         geographic origin of products

Question 19

For a perfectly competitive firm, the marginal cost curve is identical to the firm’s

____________________.

·         demand curve

·         supply curve

·         average total cost curve

·         average variable cost curve

Question 20

Refer to the diagram above. In this instance, the marginal revenue curve

·         reflects a perfectly competitive firm

·         is equal to the price of the good

·         is a horizontal straight line

·         reflects each of the above

Question 21

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

·         what quantity to produce

·         what price to charge

·         what quantity of labor is needed

·         what quality to produce

Question 22

The following figure shows the average cost curve, demand curve, and marginal revenue curve for a monopolist.

After maximizing profits, what do the firm’s costs equal?

·         the area of rectangle ABGH

·         the area of rectangle BDEG

·         the area of rectangle ACFH

·         the area of rectangle ADEH

Question 23

The following graph shows the demand curve for a good and the long run average cost curve for a typical firm in this market.

If the government does not intervene in the market, then

·         there will be many firms in this market, all of whom will take the market price as given and produce where price equals marginal cost

·         there will only be 1 firm in this market, and they will produce where marginal revenue equals marginal cost

·         there will only be 1 firm in this market, and they will take the price as given and produce where price equals marginal cost

·         no firms will enter this market

Question 24

By 2007, US market deregulation has proven to be most toxic to the overall health of the US economy in the ________________.

·         telecommunications sector

·         postal services sector

·         banking sector

·         nuclear power sector

Question 25

In a monopolistically competitive market, the rule for maximizing profit is to set MR = MC, which means

·         price is higher than marginal revenue.

·         price is equal to marginal revenue.

·         price is equal to marginal cost.

·         price is lower than marginal revenue. 

Question 26

The following table shows the demand curve and cost information for a firm that is a monopoly.

Price      Quantity              TC

$30         0              $10,200

$26         1,000     $11,000

$22         2,000     $12,000

$18         3,000     $15,000

$14         4,000     $22,000

If they maximize their profits, what will their revenue equal?

·         $16,000

·         $32,000

·         $54,000

·         $56,000

Question 27

The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to

·         match price increases, but not price cuts.

·         stand at opposite ends of the competition spectrum.

·         match price cuts, but not price increases.

·         stand at the high point of the competition spectrum.

Question 28

What role does the US government play with respect to market competition?

·         policing anticompetitive behavior and prohibiting contracts that restrict competition

·         preserving competition by regulating price and/or quantity of output

·         intervening in the price and output decision of businesses

·         maintaining abundant government-owned firms to ensure consumer friendly pricing

Question 29

If the largest four firms in an industry control less than half the market, their competitive concentration ratio

·         would be considered to be especially high.

·         would not be considered particularly high

·         would not be considered particularly low.

·         would be considered to be especially low.

Question 30

City Gas is a natural monopoly that supplies natural gas to a particular city. Its cost and demand information are given below.

Quantity (Millions of therms)     Price ($ per therm)          Total Cost (million $)

1              48           35

2              44           64

3              38           90

4              30           113

5              20           133

6              8              150

If the government decides to regulate this natural monopoly by forcing them to produce at the point where the demand curve intersects average cost, then compared to the unregulated natural monopoly, the price will ____________ and the quantity will ___________.

·         rise, rise

·         rise, fall 

·         fall, rise

·         fall, fall

Question 31

If the level of incomes rises for high-income workers but doesn’t change for low-income

workers,

·         then poverty will not change and inequality will fall.

·         then poverty will not change and inequality will rise.

·         then poverty will rise and inequality will fall.

·         then poverty will fall and inequality will rise.

Question 32

Measuring economic inequality involves comparing those with _________________________.

·         high incomes and those below the poverty line

·         high incomes and those with low incomes

·         high incomes middle incomes, and low incomes

·         high incomes and those near the poverty line

Question 33

A ________________ operates directly between a saver with financial assets to invest and an entity who will receive those assets in exchange for paying a ________________ .

·         public company; higher rate of interest

·         public company; higher rate of interest

·         private company; higher rate of interest

·         stock market; rate of return

Question 34

Why would a large publicly traded corporation likely prefer issuing bonds as a way to raise new money as opposed to issuing more shares?

·         the rate of return the corporation promised will be more difficult to deliver

·         more shares will dilute the existing value of the stock, causing its market price to fall

·         the market will view the new share issue as a sign the company is in financial difficulty

·         issuing bonds is a more secure method for corporations to raise needed money

Question 35

If pollutants are emitted into the air and water, what costs might be incurred as a result?

·         compromised recreation possibilities

·         decreased property values

·         loss from destruction of wildlife habitat

·         health injuries and all of the above

Question 36

A pollution charge gives the trucking industry an incentive to reduce its emissions, as long as the ______________________ of reducing the emissions is ______________________.

·         total cost; less than the tax

·         total cost; equal to the social cost

·         t!   C. marginal cost; less than the tax

·         marginal cost; equal to the social cost

Question 37

Which of the following would most likely be recognized as a defining characteristic of a public good?

·         the good is nonrivalrous item

·         the good is nonexcludable item

·         the good is both a and b above

·         the good is a separate and identifiable item

Question 38

When it is costly or impossible to exclude someone who hasn't paid to use a particular good from using it, then that good is classified as being

·         unexcludable

·         free rider

·         public good

·         nonexcludable

Question 39

As a result of the American workers' ability to sell their labor though a union, profit-making firms must pay wages

·         exceeding the wage those firms would otherwise have negotiated with or paid to individual workers.

·         at the intersection of the demand for and supply of labor curves.

·         below the equilibrium wage level those firms would otherwise be able to pay.

·         that match the preferred equilibrium wage these firms have selected.

Question 40

The absence of which of the following best explains why government agencies are slower to correct mistakes than private firms.

·         imperfect information

·         discrimination in wealth distribution

·         monopoly over the economy

·         competition or a threat of new entry

Question 41

Terry attends college and works part-time job in a drug store. She can work up to 40 hours each week, and is paid $9 per hour. The table below shows her utility from different levels of leisure and income. If Terry decides to work 20 hours per week, her total utility from both leisure and income would be:

Hours of leisure                Total Utility from leisure               Income Total Utility from income

5              18           45           35

10           34           90           59

15           48           135         77

20           56           180         86

25           60           225         92

30           65           270         98

35           69           315         103

40           72           360         107

·         142

·         115

·         110

·         179

Question 42

Which of the following is an important decision a firm makes?

·         what to produce

·         how to produce what it makes

·         how much to produce

·         all of the above.

Question 43

Refer to the table below.

Quantity              Variable Cost

(in dollars)           Fixed Costs

(in dollars)           Total Costs

(in dollars)           Average Variable Costs

(in dollars per unit)          Average Total Costs (in dollars per unit) Marginal Costs

(in dollars per unit)

0              0              40           40           --             --             --

1              1              40           55           15           55           15

2              3              40           75           17.5        37.5        20

3              60           40           100         20           33.3        25

4              90           40           130         22.5        32.5        30

5              125         40           155         25           31           35

6              160         40           200         26.6        33.3        40

If the firm produces 4 units that it sells at a price of $30.00 each, what will its profits or losses equal?

·         losses equal $10

·         profits equal $10

·         profits equal $120

·         the firm breaks even

Question 44

Mindy's company manufactures rubber balls used by elementary schools for playground activities. The table below sets out her firm's production cost information. Some values are missing. Which of the following statements is correct?

Quantity              Variable Cost     Fixed Cost           Total Cost            Average Variable Cost ($ per unit)            Marginal Cost ($ per unit)

0              0              40           40           0              -

1              5                              B             5              E

2              15                           C             D             F

3              A                             60           20           G

·         A = 20; E = 45

·         C = 45; E = 45

·         A = 25; E = 5

·         C = 55; F = 10

Question 45

Refer to the diagram above. In this instance, point m shown on the graph indicates

·         the point where profits will increase by increasing output

·         the lowest price at which the firm will produce in the short run

·         the profit-maximizing point where MR = MC

·         the profit-maximizing point where MR is less an MC

Question 46

The information below sets out the estimated market shares for the widget manufacturing market.

If Company C were to acquire Company D, the Herfindahl-Hirschman index would be

·         100

·         95

·         2850

·      

       Question 47

Mary decides to take a vacation. If she does so, she will lose two weeks wages. She earns $1000 per week, but spends $50 a week to commute to work. The cost of the package tour she plans to purchase is $3000. What is her opportunity cost of her vacation?

·         $0

·         $3000

·         $5000

·         $4900

Question 48

Sam is a single father with 2 children. He earns $15 per hour and can work up to 1,800 hours per year. If Sam does not earn any income at all, he receives government benefits totaling $20,000 per year. For every $1 of income he earns, his level of government support is reduced by $1. Which of the following statement best describes Sam’s situation?

·         He has no monetary incentive to work.

·         He has a monetary incentive to work if he works more than 1800 hours.

·         He has a monetary incentive to work as long as he does not exceed 1800 hours

·         He has no monetary incentive to work more than 1200 hours.

Question 49

For a negative externality, the private costs borne by those involved in an action are _____________________ the costs imposed on society as a whole. As a consequence, third parties not involved in the action __________________________.

·         less than; pay for some of the costs

·         the same as; do not bear any of the costs

·         more than; receive a social benefit.

·         less than; are not affected by it.

Question 50

When a market __________________, the outcome is termed ___________________.

·         fails to allocate resources efficiently; externality avoidance

·         operates inside the production possibilities frontier; full employment

·         fails to allocate resources efficiently; market failure

·         is non-rivalrous and non-rivalrous; private goods