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Micro Econ Final

Spring 2017

Question	Answer
Efficiency means that	Society is getting the maximum benefits from its scarce resources
The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that	Equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.
The opportunity cost of an item is	what you give up to get that item
Mallory decides to spend three hours overtime rather than watching a movie with her friends. She earns $8 an hour. Her opportunity cost of working the three overtime hours is	the enjoyment she would have received had she watched the movie
For which of the following individuals would the opportunity cost of going to college be highest?	A famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree.
A rational decision maker takes an action only if the	marginal benefit is greater than the marginal cost
Toms spent $3500 on the restoration. Expects to sell the car for $5000. Toms needs to do $2000 of work to make the car worth $5000 to potential buyers. Could sell car now, w/ work for $2800. What should he do?	He should complete the additional work and sell the car for $5000
The famous observation that households and firms interacting in markets act as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from where 1776 book?	Adam Smith
A rationale for government involvement in a market economy is as follows	all of the above are correct
The term market failure refers to	a situation in which the market on its own fails to allocate resources efficiently
Economists, like mathematicians, physicists, and biologists,	all of the above are correct
For an economist, the idea of making assumptions is regarded generally as a	good idea, since doing so helps to simplify the complex world and make it easier to understand
A model can be accurately described as a	simplification of reality
Factors of production are	inputs into the production process
In the circular-flow diagram, which of the following is not a factor of production	money
in the simple circular-flow diagram,	households buy the goods and services that firms produce
The production possibilities frontier is a graph that shows the various combinations of output that an economy	can produce
If an economy is producing efficiently (on a PPF), then	there is no way to produce more of one good without producing less of another good
When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good	increases as more of the good is produced
The law of demand states that, other things equal	when the price of a good falls, the quantity demanded of the good rises
Which of the following is not a determinant of demand?	the price of a resource that is used to produce the good
The law of supply states that, other things equal,	when the price of a good rises, the quantity demanded is greater than quantity supplied
When a surplus exists in a market, sellers	lower price, which increases quantity demanded and decreases quantity supplied, until the surplus is eliminated
When quantity demanded increases at every possible price, we know that the demand curve	shifted to the right
If a good is normal, then an increase in income will result in	and increase in the demand of the good
Suppose that Carolyn receives a pay increase. We would expect	Carolyn's demand for inferior goods to decrease
Good X and Y are substitutes. If the price of good Y increases then the ____for Good X will _______.	Demand: increase
Other things equal, when the price of a good falls, the	quantity supplied of the good decreases
Lead is an important in the production of crystal. If the price of lead decreases, then we would expect the ____ of crystal to _____.	Supply; decrease
If the demand for a good decreases (holding supply constant), then we would expect	Equilibrium price and equilibrium quantity to both decrease
If the supply of a good decreases (holding demand constant), then we would expect	Equilibrium price to increase and equilibrium quantity to decrease
Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?	Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous
Suppose that demand for a good decreases and, at the same time, supply of the good decreases. What would happen in the market for the good?	Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous
Which side of the market do expectations affect?	Both supply and demand
What is equal at equilibrium	Quantity supplied and quantity demanded
We assume that markets are perfect competitive when using supply and demand models. How many firms and consumers are there in a perfectly competitive market?	Many consumers and many firms
Generally, elasticity measures	how responsive one variable is to a change in another variable
If the price elasticity of demand (Ed) for a good/service is 2, then demand for this good/service is ____.	Elastic
A price elasticity of demand (Ed) that would be considered slightly inelastic would be	0.99
Compliments will have a _____ number for their ____ elasticity of demand	negative; cross-price
The curve in Figure 1	May be either a perfectly inelastic demand curve or a perfectly inelastic supply curve
If a price elasticity of demand is currently elastic and price is raised	Total revenue will fall
Total Revenue is maximized when price elasticity of demand is	unit elastic
Rank these three items in terms of their elasticity of demand (Ed) from the most price elastic to least price elastic: vegetables, food, celery	Celery, vegetables, food
Which of following is likely to have the most price inelastic demand?	toothpaste
Suppose the season tickets to Denver Broncos home games currently have a price elasticity of demand (Ed) of 0.002 and income elasticity of demand (EI) of 20. This means that season tickets to Broncos home games are ____ and ___.	Price inelastic; normal
Which of these is thought to be the most important determinant of the price elasticity of demand (ED)?	Number of available substitutes
Which of these is the only determinants of price elasticity of supply (ES) that we discussed in class?	Time horizon
A binding price ceiling is shown in	panel b but not panel a
In which panel of the figure would there be a surplus of the good with the price ceiling?	Neither panel a nor panel b
A minimum wage that is set below a market's equilibrium wage will result in	none of the above
Under rent control, people who receive an apartment can expect	lower rent and lower quality housing
Which of the following price controls would cause a shortage of 20 units of the good?	A price ceiling of $5
When the price ceiling applies in this market and the supply curve for gasoline shifts from S2 to S1	The market price will decrease to P1
The term tax incidence refers to	The distribution of the tax burden between buyers and sellers
A $2.00 per-unit tax levied on the sellers of beer will shift the market supply curve	upward by exactly $2.00
A per-unit tax on a good	raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
When demand is more price elastic than supply, who incurs a higher tax incidence?	sellers
Welfare economics is the study of how	the allocation of resources affects economic well-being
Suppose Steve and Martha attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called	Willingness to Pay
Consumer surplus is	The amount the buyer is willing to pay for a good minus the amount the buyer actually pays for it.
Chad is willing to pay $5.00 to get this cup of morning latte. He buys a cup from a vendor selling lattes for $3.75 per cup. Chad's consumer surplus is	$1.25
Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one fro $350. Denise's willingness to pay is	$500
In a market, the marginal buyer is the buyer	who would be the first to leave the market if the price was any higher
Suppose you are browsing Amazon.com for a new DVD copy of Friday the 13th Part VI: Jason Lives. You are willing to pay up to $10 for it and you are able to pay up to $12. The current price on Amazon for this classic motion is $11. What would you do?	You do not buy the movie, because you are able but not willing
All else equal, what happens to the consumer surplus if the price of a good decreases?	Consumer surplus increases
Producer Surplus is	the amount a seller is paid minus the cost of production.
Producer surplus directly measures	the well-being of sellers
Ally mows lawns for a living. Ally's out of pocket expenses (equipment, gas) plus the value that she places on her own amount to her	cost of mowing lawns
The marginal seller is the seller who	would leave the market first if the price were any lower
When the price is P2, producer surplus is	A+B+C
When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers? Which are area represents the increase in a producer surplus due to new producers entering the market?	A;B
We can say that the allocation of resources in efficient if	total surplus is maximized
The decrease in total surplus that results from a market distortion, such as tax is called:	dead weight loss
Total surplus with a tax is equal to	consumer surplus producer surplus plus tax revenue
Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the quantity of gasoline demanded to ______ and the quantity supplied to _____.	Decrease; decrease
The dead weight loss from a $1 tax will be smallest in a market with	inelastic supply and inelastic demand
In general, as size of a tax rises, the size of deadweight loss will_____.	rise
In general, as the size of a tax rises, the size of the tax revenue will	rise at first, but then fall after the tax becomes a certain size
Total surplus after the tax is measured y the area (graph)	J+K+L+M
The tax revenue is measured by the area (Graph)	K+L
The consumer surplus before the tax is measured by the area (Graph)	J+K+L
The deadweight loss due to the tax is measured by the area (Graph)	I+Y
Which of the following combinations will maximize the dead weight loss	Supply 2 and demand 2
With which of the Ten principles of economics is the study of international trade most closely connected	trade can make everyone better off
According to economists, patterns of trade among nations are primarily determined by	comparative advantage
A country has a comparative advantage in a product if the world price is	higher than that country's domestic price without trade
If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price	the country will be an importer
When a country allows trade and becomes an exporter of a good	domestic producers gain and domestic consumers lose
When a country allows trade and becomes an importer of a good	consumer surplus increases and producer surplus decreases
When in our analysis of the gains and losses from international trade, we assume that a country is small we are in effect assuming the country	cannot affect world prices by trading with outer countries
A tariff is a _____. Quota is a ____.	Tax on an imported good: limit on how much of a good can be imported
When an economy opens up a market for free trade, the total surplus in this market ______ if they import the good and the total surplus in this market ______ if they export the good.	Increases; increases
Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run. This observation helps to explain why many economists are skeptical about the	infant-industry argument
An externality is an example of	market failure
A negative externality arises when a person engages in an activity that has	a beneficial effect on a bystander who does not pay the person who causes the effect
1 fan externality is present in a market, economic efficiency may be enhanced by	government intervention
All remedies for externalizes share the goal of	moving the allocated resources toward the socially optimal equilibrium
The industry creates	negative externalizes
Without any government intervention, the equilibrium price and quantity are	$1.60 and 42 units respectfully
The socially optimal price and quantity are	$1.80 and 35 units
A public method to help solve the problem with externality would be a	Pigouvian Tax
When a negative externality exits in a market the costs to producers	will be less than the cost to society
Suppose that electricity producers create a negative externality equal to $5 unit what is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?	The equilibrium quantity is bigger than socially optimal quantity
Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship?	The equilibrium quantity is less than the socially optimal quantity
Example of positive externality	Mary not catching the flu from Sue
A command and control policy is another term for a	Governmental regulation
Corrective taxes are unlike most other taxes because they	move the allocations of resources closer to the social optimum
Regulations to reduce pollution	are a more costly solution to society that a corrective tax
The Coase theorem suggests that private solutions to an externality problem	Will usually allocate resources efficiently if private parties can bargain without costs
In which of the following cases is the Coase theorem most likely to solve the externality?	Ed is allergic to his roommates cat
When a good is excludable	people can be prevented from using the good
When a good rival is consumption	ones persons use of the good diminishes another's ability to use it
Both public goods and common resources are	non excludable
An example of a private good would be	a t-shirt
Without government intervention, public goods tend to be ____ and common resources tend to be _____.	Underproduced: overconsumed
A free rider problem exists for any good that is not	excludable
Which parable describes the problem of wild animals that are hunted to the point of extinction	tragedy of the commons
Which of the following would be an example of an implicit cost for the owner of a firm	(i) only
Total revenue minus only explicit costs is called	accounting profit
The marginal product of labor is equal to the increase in output obtained from one unit from	one unit increase in labor
When adding another unit of labor leads to an increase in output that is smaller than the increase in output that is resulted from adding previous units of labor, the firm is experiencing	Diminishing marginal product
In the short run, a firm incurs fixed costs	whether it produces output or not
Marginal cost is equal to	^TC/^Q
If the marginal cost is below average total cost, then the average total cost is	falling
Which of the following accounts for the U-shaped look in the short run ATC curve	Law of diminishing marginal product
How long does it take a firm to go from the short run to the long run	depends on the nature of the firm
If long-run average total cost decreases as the quantity of the output increases, the firm is experiencing	economics of scale
A reason that firms may be experiencing dis-economies of scale could be that	very large management structures may be difficult to coordinate
Which of the following account for the U-shaped in the long-run ATC curve	economies of scale and dis-economies of scale
Which of the following is not a characteristic of a competitive market	free entry is limited
When buyers in a competitive market take the selling price as given, they are said to be	price takers
Suppose a firm in a competitive market reduces it output by 20 %. As a result, the price of its output is likely to	remain unchanged
Firms that operate in perfectly competitive markets try to	maximize profits
If a competitive firm is currently producing at a level of output at which marginal revenue exceeds marginal cost, then	a one unit increase in output will increase the firms profit
If the competitive firm is currently producing at a level of output at which marginal cost exceeds marginal revenue, then	a one unit decrease in output will increase the firms profit
Carla's candy store maximizing profits by 1000 pounds	is still 1000 pounds
We can measure the profits earned by a firm in a competitive market industry as	(P-ATC)xQ
If a firm is operating in a competitive industry shuts down in the short run, it can avoid paying	variable costs
In a perfectly competitive market, the process of entry and exit will end when	economic profits are zero
If the market price is P3, in the short run the perfectly competitive firm will earn	negative economic profits and will shut down
Which of the four prices corresponds to a perfectly competitive firm earning exactly zero economic profit	P2
Which of these curves is the competitive firms short-run supply curve	the marginal cost curve above average variable cost AVC
The competitive firms long run supply curve is that portion of the marginal cost curve that lies above average	total cost
Which of the following is not a characteristic of a monopoly	one buyer
Which of the following is a characteristic of a natural monopoly	ATC declines over large regions of output
Which of the following statements is correct for both monopolistic and a perfectly competitive firm	i) only
The DWL associated with monopoly occurs because the monopolist	produces and output level less than the socially optimal level
Price discrimination is the best business practice of	selling the same good at different prices to different customers
Compared to a single price monopoly, perfect price discrimination	eliminates DWL
If a shortage exists in a market, then we know that the actual price is	below the equilibrium price and quantity demanded is greater than quantity supplied
A positive externality arises when a person engages in an activity that has	a beneficial effect on a bystander who does not pay the person who causes the effect

Created by: suroth

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