Final Exam

Question 1

True or False.
Trade Patterns are determined by comparative advantage not by absolute advantage.

Answer 1

True

Question 2

Optimal choices must satisfy…

Answer 2

Marginal cost = Marginal Benefit

Question 3

PPF means…

Answer 3

Production Point Frontier

Question 4

Factors that can shift the demand curve are:

Answer 4

• price of consumption
• complements or substitutes
• income, populations and taxes

Question 5

Factors that can shift the supply curve:

Answer 5

• price of production
• substitutes and complements
• the price of factors of production
• the number of firms and technology

Question 6

A competitive equilibrium is..

Answer 6

the price and quantity where supply and demand intersect

Question 7

When prices are above equilibrium level…

Answer 7

There is excess production

Question 8

When prices are below the competitive level…

Answer 8

there are shortages

Question 9

When demand increases, what happens to the equilibrium price and quantity?

Answer 9

They both increase

Question 10

When supply increase what happens to the equilibrium price and quantity?

Answer 10

The quantity goes up and price goes down

Question 11

The cross-price elasticity helps describe the relationship between…

Answer 11

Complements and substitutes

Question 12

If the cross price elasticty is positive it means it is a…

Answer 12

Substitute

Question 13

if the cross price elasticity is negative it means it is a…

Answer 13

Complement

Question 14

Income elasticity of demand helps us determine if a good is

Answer 14

Inferior or normal

Question 15

If the income elasticity is less than 1…

Answer 15

it is an inferior good

Question 16

If the income elasticity is greater than 1

Answer 16

it is a normal good

Question 17

Indifference curves are usually…

Answer 17

Decreasing at a decreasing rate

Question 18

Indifference curves usually tell us if..

Answer 18

the 2 goods are perfect subs or perfect complements are something in between

Question 19

If the indifference curves are lines…

Answer 19

it is a perfect substitute

Question 20

If the indifference curves are L-shaped…

Answer 20

It is a perfect complement

Question 21

If the indifference curves are curves…

Answer 21

It is something in between

Question 22

The slope of an indfference curve is…

Answer 22

MRS

Question 23

The slope of the budget equation is…

Answer 23

The relative price

Question 24

True or False
Relative price = MRS

Answer 24

True

Question 25

True or False. The FC curve is always decreasing

Answer 25

True

Question 26

True or False The TC curve is always increasing.

Answer 26

True

Question 27

The law of diminishing returns state that...

Answer 27

The MC, AVC and ATC curves eventually becoming increasing at an increasing rate

Question 28

In perfect competition we assume that...

Answer 28

each firm has a perfectly elastic demand. that is, and they have to act as price takers

Question 29

True or False. In a perfectly competitive market marginal revenue = demand.

Answer 29

True

Question 30

True or false. Competition makes the residual demand of each firm be more elastic. This lowers profit and prices

Answer 30

True.

Question 31

In perfect competition the optimal choice of firms is...

Answer 31

Marginal cost = price

Question 32

The best welfare criterion is the...

Answer 32

Pareto Criterion: policies that help some without hurting others unambiguously good.

Question 33

What happens in a perfectly competitive market without externalities?

Answer 33

Total surplus is maximized by the competitive equilibrium

Question 34

What happens in a monopolistic market with perfect price discrimination?

Answer 34

Total surplus is maximized by the monopolistic equilibrium

Question 35

What is a price control?

Answer 35

A price control restricts the prices at which legal trade can occur. Examples are rent controls and minimum wages

Question 36

What happens in a competitive market without externalities and with price control?

Answer 36

It will decrease trade and total surplus

Question 37

What will happen in a market that is not perfectly competitive with a price control?

Answer 37

It will increase trade and total surplus

Question 38

What are sales tax?

Answer 38

Sales tax are a way of raising revenue for the govy

Question 39

What are subsidies?

Answer 39

Negative taxes. Buyers and sellers are compensated for each unit traded

Question 40

Tax will reduce...

Answer 40

Trade

Question 41

Subsidies will increase...

Answer 41

Trade

Question 42

Externalities are...

Answer 42

the effects that our choices have on the wellbeing of other people

Question 43

True or False MSC=MSB

Answer 43

True

Question 44

An unregulated market with negative externalities...

Answer 44

Will result in overproduction and dead-weight loss

Question 45

An unregulated market with positive externalities...

Answer 45

with result in underproduction and dead-weight loss

Question 46

What is one way to deal with negative externalities?

Answer 46

Pigouvian Taxes

Question 47

What is a monopsony?

Answer 47

A market operated by a single buyer

Question 48

True or False. For a monopsony, the MCL is above the supply curve

Answer 48

True

Question 49

True or False. In concentrated labour markets, minimum wages can increase employment and total market surplus

Answer 49

True

Question 50

What is a production quota?

Answer 50

A Limit to the quantity of a good that maybe produced in a specified period in time