Exam 2019 (I) Flashcards by Femke Dhondt

A market …

a) Always involves the exchange of goods for money.
b) Always allows interactions between buyers and sellers.
c) Always takes place at a physical location.
d) All of the options a), b), and c) are correct.

Always allows interactions between buyers and sellers.

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If a model’s predictions are correct, then …

a) Its underlying assumptions must have been correct.
b) This proves that the model correctly captures the causal mechanisms involved.
c) Both options a and b are correct.
d) Neither of the options a or b is correct

Neither of the options a or b is correct

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Which of the following is an example of a normative statement?

a) A higher price of penicillin causes people to want to buy less of it.
b) A lower price of penicillin causes people to want to buy more of it.
c) To make penicillin available to more people, a lower price should be set.
d) Taking penicillin helps to cure bacterial infections

To make penicillin available to more people, a lower price should be set.

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Holding all other factors constant, consumers demand more of a good …

a) The higher the price of substitutes.
b) The lower its price.
c) The lower the price of complementary goods.
d) All of the options a, b, and c are correct.

All of the options a, b, and c are correct.

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A drought in agricultural regions will raise the price of wheat because of a …

a) leftward shift of the supply curve.
b) rightward shift of the supply curve.
c) leftward shift of the demand curve.
d) rightward shift of the demand curve.

Leftward shift of the supply curve.

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Coffee and creamer are complements for many consumers. If the price of coffee increases, with other factors remaining the same, we would expect …

a) the demand curve for coffee to shift to the left.
b) the demand curve for creamer to shift to the right.
c) the demand curve for creamer to shift to the left
d) the supply curve for creamer to shift to the right.

The demand curve for creamer to shift to the left

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Market equilibrium is defined as a situation in which …

a) neither buyers nor sellers have an immediate incentive to change their behavior.
b) no government regulations exist.
c) demand curves are perfectly horizontal.
d) suppliers will supply any amount that buyers wish to buy.

Neither buyers nor sellers have an immediate incentive to change their behavior.

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Imagine that, initially, the price of corn was controlled by the government. Once the price control was lifted, it was observed that the price of corn decreased. Which of the following statements is correct?

a) The government had imposed a price floor to control the price of corn.
b) The government had imposed a price ceiling to control the price of corn.
c) There was excess demand for corn when its price was controlled.
d) There is not enough information to make a motivated choice between the options a, b, and c).

The government had imposed a price floor to control the price of corn.

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Figure 1 shows a graph of the market for pizzas in a large town. Suppose that concern over dietary habits has led the government to impose a restriction that limits suppliers to produce no more than 40 pizzas. What will the equilibrium price of pizza be as a result of this quota?

a) P = 2
b) P = 10
c) P = 7
d) P = 8

P = 10

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Again consider Figure 1. As a result of concern over the affordability of pizza, the government restricts sellers from charging a price over €7. As a result, the equilibrium quantity of pizzas consumed will be …

a) Q = 0
b) Q = 40
c) Q = 60
d) Q = 70

Q = 40

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Along a downward-sloping linear demand curve, the lower the price, …

a) the less elastic (in absolute value) is demand.
b) the more elastic (in absolute value) is demand.
c) the more the demand elasticity tends towards –1.
d) the more the demand elasticity tends towards minus infinity

The less elastic (in absolute value) is demand.

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If an upward-sloping linear supply curve shifts rightward in a parallel fashion then, at any given price, the price elasticity of supply will …

a) increase.
b) decrease.
c) remain unchanged.
d) There is not enough information to make a motivated choice between the options a, b, and c.

Decrease

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Which of the following considerations provides a potential reason why the supply of oil may be more price elastic in the long run than in the short run?

a) A higher oil price stimulates the discovery of new deposits.
b) A higher oil price stimulates the invention and application of better extraction technology.
c) In the long run, the oil firms can adjust the amount of all inputs.
d) All of the options a, b, and c are correct.

All of the options a, b, and c are correct.

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If a government wants to maximize revenues from a specific tax then, with all other factors the same, it should…

a) impose it on sellers.
b) impose it on consumers.
c) impose it on goods with relatively price-elastic demand curves.
d) impose it on goods with relative price inelastic demand curves.

Impose it on goods with relative price inelastic demand curves.

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Imagine that the government decides to levy a valoremtax on a product with a perfectly inelastic supply.The tax incidence on consumers will be …

a) 0
b) 0.5
c) 1
d) There is not enough information to make a motivated choice between the options a, b, and c.

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A consumer eats only bananas and oranges. She prefers a basket containing 2 bananas and 3 oranges to a basket containing 1 banana and 3 oranges. She also prefers a basket containing 1 banana and 3 oranges to a basket containing 3 bananas and 1 orange. Finally, she prefers a basket containing 3 bananas and 1 orange to a basket containing 3 bananas and 2 oranges. The preferences of this consumer …

a) violate the “completeness” assumption.
b) violate the “more is better” assumption.
c) violate the “transitivity” assumption.
d) do not necessarily violate any of our three standard preference assumptions.

Violate the “more is better” assumption.

If an indifference curve were “thick”, this would violate the assumption of …

a) completeness.
b) transitivity.
c) more is better.
d) None of the options a, b, or c is correct.

more is better.

Convexity of indifference curves between two goods X and Y implies that consumers are willing to …

a) give up more Y to get an extra unit of X the more X they have.
b) give up more Y to get an extra unit of X the less X they have.
c) settle for less of both X and Y.
d) acquire more X only if they do not have to give up any Y.

Give up more Y to get an extra unit of X the less X they have.

If Johnny likes homework (H) but hates exercise (E), which of the following might best represent his utility function for homework and exercise?

a) U = H + E
b) U = H^2 + sqrt(E)
c) U = H^2 * sqrt(E)
d) None of the options a, b, or c is correct.

None of the options a, b, or c is correct.

If a consumer’s budget line for food and shelter S is represented as F = 250 – 5S, we know that …

a) the consumer’s income is 250.
b) the price of shelter is 5.
c) the price of shelter is 5 times the price of food.
d) All of the options a), b), and c) are correct.

The price of shelter is 5 times the price of food.

The rate at which a consumer must give up units of good Y in order to get one more unit of good X is equal to…

a) -Px/Py
b) -Py/Px
c) -MUx/MUy
d) -MUy/MUx

-Px/Py

Concerning consuming food and shelter, two consumers face the same prices and both claim to be consuming their optimum bundle. We therefore know that …

a) they both must have the same marginal utility for food.
b) they both must have the same marginal utility for shelter.
c) they both must have the same MRS of food for shelter.
d) All options a, b, and c are correct.

They both must have the same MRS of food for shelter.

Johnny has allocated €30 toward coffee and tea and feels that coffee and tea are perfect substitutes. Due to differences in caffeine levels, his MRS of tea for coffee equals 2. If coffee and tea sell for the same price, Johnny will …

a) spend all €30 on tea.
b) spend all €30 on coffee.
c) spend €20 on coffee and €10 on tea.
d) be indifferent between any bundle of coffee and tea costing €30.

Spend all €30 on coffee.

Suppose a graph is drawn to show a consumer’s preferences for football tickets and basketball tickets. The quantity of football tickets is measured on the horizontal axis. It turns out that, when the price of football tickets changes, the price-consumption curve is horizontal (so that the demand for basketball tickets remains the same). This implies that …

a) football tickets are an inferior good.
b) the demand for football tickets is perfectly elastic.
c) the demand for football tickets is unitary elastic.
d) The demand curve for football tickets will be vertical

The demand for football tickets is unitary elastic.

Figure 2 depicts a part of an income-consumption curve. Which of the following statements is correct? a) Both goods and are normal. b) Both goods C and F are inferior. c) Good F is a normal good; beyond some income level, good C turns from normal to inferior. d) Good C is a normal good; beyond some income level, good F turns from normal to inferior.

Good C is a normal good; beyond some income level, good F turns from normal to inferior.

Suppose the quantity of good X is measured on the horizontal axis of the (X, Y) plane. When deriving the Engel curve for good X, then ... a) the price of good X is varied while the price of good Y is kept constant. b) the price of good Y is varied while the price of good X is kept constant. c) the prices of both goods are kept constant. d) None of the options a, b, or c is correct.

The prices of both goods are kept constant.

Figure 3 alongside shows Larry’s indifference map and budget lines for ham and pork. Which of the following statements is correct? a) Pork is an inferior good. b) Ham is an inferior good. c) Neither pork nor ham is an inferior good. d) Both ham and pork are inferior goods

Ham is an inferior good.

Suppose Lisa spends all of her money on books and coffee. These goods are neither perfect substitutes nor perfect complements to her; nothing further is known about her preferences. When the price of coffee decreases, ... a) the substitution effect on coffee is positive, and the income effect on coffee is positive. b) the substitution effect on coffee is ambiguous, and the income effect on coffee is ambiguous. c) the substitution effect on coffee is positive, and the income effect on coffee is ambiguous. d) the substitution effect on coffee is ambiguous, and the income effect on coffee is positive.

The substitution effect on coffee is positive, and the income effect on coffee is ambiguous.

In the case of a normal good ... a) demand curves always slope downward. b) the income effect and substitution effect are in the same direction. c) the Engel curve slopes upward. d) All of the options a, b, and c are correct.

All of the options a, b, and c are correct.

Consider a short-run production function, where the amount of capital is fixed. The average product of labor will fall as long as ... a) it exceeds the marginal product of labor. b) it is less than the marginal product of labor. c) the marginal product of labor is falling. d) the number of workers is increasing.

It exceeds the marginal product of labor.

Table 1 depicts the short-run production function for Albert’sPretzels. The average product of labor ... a) first rises, then falls, as the amount of labor increases. b) first falls, then rises, as the amount of labor increases. c) is greater than or equal to the marginal product of labor for allamounts of labor. d) is less than or equal to the marginal product of labor for allamounts of labor.

Is greater than or equal to the marginal product of labor for allamounts of labor.

Which of the following statement(s) is (are )correct? I. Unlike indifference curves, isoquants can intersect. II. If inputs into production cannot be substituted for each other but have to be employed in fixed proportions, then the isoquants are straight, downward-sloping lines. a) Statement I is correct, and statement II is incorrect. b) Statement I is incorrect, and statement II is correct. c) Both statements I and II are correct. d) Both statements I and II are incorrect.

Both statements I and II are incorrect.

One way to explain the convexity of isoquants is to say that ... a) as labor increases and capital decreases, MPl rises while MPk falls. b) as labor increases and capital decreases, MPL falls while MPK rises. c) as labor increases and capital decreases, MPL and MPk both fall. d) as labor increases and capital decreases, MPL and MPk both rise.

As labor increases and capital decreases, MPL falls while MPK rises.

In the apparel and textile products industry, it is estimated that the elasticity of output concerning labor is 0.70 and the elasticity of output concerning capital is 0.31. These two measures indicate that the apparel and textile industry is most closely characterized by ... a) strong increasing returns to scale. b) weak decreasing returns to scale. c) nearly constant returns to scale. d) There is not enough information to make a motivated choice between the options a, b, and c.

Nearly constant returns to scale.