exam 2 - sample 2

Question 1

A consumer at a grocery store finds an apple that they believe will give them 10 utils of
utility if they eat it and an orange that they believe will give them 15 utils. An apple costs 25
cents and an orange costs 50 cents. An economist would say that:

Answer 1

a. they should buy the apple

Question 2

the value of goods to consumers is primarily determined by their

Answer 2

marginal utility

Question 3

(True/False) The marginal utility can be found by looking at the change in utility that
would result from the next unit of a good we consume.

Answer 3

truer

Question 4

Because we can only rank goods by which we like more than others, without being able to say
precisely how much more we like one than another, utility measurement is said to be:

Answer 4

cardinal

Question 5

Pareto’s theory says that we can prove that a choice makes a group better off only when:

Answer 5

it makes at least one person better off and no one worse off

Question 6

If the price of a good is $8 and Bob would have paid $10 for it, and the business would have
sold it to Bob for $7, Bob’s consumer surplus is

Answer 6

$2

Question 7

Elasticity measured along a segment of a demand curve (instead of at a single point) is known as ___________________ elasticity

Answer 7

arc

Question 8

The price of good X rises from $10 to $15. The revenue of the firm goes from $5,000 to
$4,500. The price elasticity of demand for good X is:

Answer 8

elastic

Question 9

(True/False) “Elastic” means greater than zero (positive).

Answer 9

False, means greater than one.

Question 10

A straight line demand curve is:

Answer 10

elastic above its midpoint and inelastic below

Question 11

We note that the grocery store constantly has sales of breakfast cereal, and that it is always
possible to find some brands of cereal on sale at a reduced price. This would suggest to us
that the store believes that the demand for breakfast cereal is _____

Answer 11

elastic

Question 12

Accounting profit equals revenue minus __________________________________________ costs.

Answer 12

explicit

Question 13

Economic profit equals revenue minus ____________________________________________ cost

Answer 13

opportunity

Question 14

The amount of profit required by a business so that it will continue to operate is
________________________________________________________ profit.

Answer 14

normal profit

Question 15

Economists believe that businesses should ignore ____ costs in decision making.

Answer 15

sunk

Question 16

Fixed costs are those that

Answer 16

do not vary with the level of production

Question 17

You sue a business owned by three people and win $1,000,000 in damages. It is not a
corporation. Two of them leave the country and cannot be found. Each person put in $10,000
to start the company. The most that the one remaining person can be made to pay is:

Answer 17

$1,000,0000

Question 18

You sue a business owned by three people and win $1,000,000 in damages. It is not a
corporation. Two of them leave the country and cannot be found. Each person put in $10,000
to start the company. The most that the one remaining person can be made to pay is:
If the business in #17 were a corporation, how much could the one remaining person lose?

Answer 18

$10,000

Question 19

Of the three kinds of business (from a legal perspective), most businesses are

Answer 19

proprietorships

Question 20

The owners of a corporation are its ___________________________________________________

Answer 20

stockholders / shareholders.

Question 21

(True/False) One of the noticeable events of the past decade has been the almost total
disappearance of the State Owned Enterprise, which used to be common in the world.

Answer 21

False

Question 22

(True/False) A corporation is a legally created person that has most of the rights of a
real person.

Answer 22

True

Question 23

Companies such as Caesar’s Entertainment switch from:

Answer 23

public to private so they can keep their operating information secret

Question 24

A multinational corporation is one that:

Answer 24

owns companies in other countries

Question 25

Starbucks got in trouble in England last year because they used their position as a
multinational company to:

Answer 25

move their profits to the Bahamas and pay no taxes in England

Question 26

_(True/False) Multinational companies that make goods in one country actually sell
those goods to themselves in other countries. This is called transfer pricing.

Answer 26

True

Question 27

________________________________________________ is the term which means a big company
buys a small company, but makes it look like the small is buying the big to avoid taxes.

Answer 27

Inversion

Question 28

The assumptions of competitive markets do not include:

Answer 28

differentiated products

Question 29

______(True/False) If the free market is working properly, every consumer will pay the same
price for a good.

Answer 29

True

Question 30

To increase its profits, a competitive firm must:

Answer 30

lower its cost

Question 31

In the modern world, most monopolies exist because:

Answer 31

they are created by the government

Question 32

Q Total Cost
0 $5,000
1 $15,000
2 $18,000
3 $20,000
Fixed costs of this business are $\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Answer 32

$5000

Question 33

Q Total Cost
0 $5,000
1 $15,000
2 $18,000
3 $20,000
Average total cost at 2 units of output is $\_\_\_\_\_\_\_\_\_\_\_\_.

Answer 33

9000

Question 34

Q Total Cost
0 $5,000
1 $15,000
2 $18,000
3 $20,000
Marginal cost of the third unit is $\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

Answer 34

2000

Question 35

The marginal cost curve is really the _____ curve.

Answer 35

supply

Question 36

Setting marginal revenue equal to marginal cost identifies the:

Answer 36

profit maximizing quantity

Question 37

graph 40-42

Answer 37

-

Question 38

Resource Allocative efficiency means that:

Answer 38

each resource is being paid based on what it contributes to the firm