Micro Economics

Question 1

People choose option A over option B…

Answer 1

When the opportunity cost of option A is higher than the opportunity cost of option B

Question 2

An increase in the price of Coca-Cola is likely to cause:

Answer 2

the demand for Pepsi to increase.

Question 3

Suppose a Japanese worker can make 15 pairs of pants or grow 90 apples per day. An American worker, on the other hand, can produce 8 pairs of pants or grow 16 apples per day. Which of the following statements is true?

Answer 3

Japan has an absolute advantage and a comparative advantage in the production of apples.

Question 4

Suppose a Canadian worker can make 40 pairs of shoes or grow 60 apples per day. An American worker, on the other hand, can produce 20 pairs of shoes or grow 40 apples per day.

Answer 4

The opportunity cost of a pair of shoes for Canada is 1.5 apples while the opportunity cost of an apple for the U.S. is 0.5 pairs of shoes.

Question 5

Consider a market that is in equilibrium. If it experiences both an increase in demand and an increase in supply (all else staying the same), what can be said of the new equilibrium?

Answer 5

The equilibrium quantity will definitely rise, while the equilibrium price cannot be predicted.

Question 6

The price of house paint, a normal good, has gone up (all else staying the same). This change can be shown graphically as:

Answer 6

a movement along the demand curve to the left.

Question 7

When the price of calculators is $65, the quantity demanded is 100. When the price is $90, the quantity demanded is 70. Using the mid-point method, the price elasticity of demand is:

Answer 7

-1.09

Question 8

Sophia is a member of a gym. She paid $75 for the registration fee (one-time fee and not refundable). The monthly fee is $45, which should be paid at the beginning of each month. However, she is considering moving to a new gym of the same characteristics but closer to her place, meaning that it is going to take less time to go to the gym (and come back home). In this alternative gym there is no registration fee and the monthly fee is $50 which should be paid at the beginning of the month.

Answer 8

Sophia will prefer the first gym rather than the new one if she values to be closer to her place in less than 5$ per month.

Question 9

Suppose that the cross-price elasticity of demand between hot dogs and mustard is –0.8. If there is a 10 percent increase in the price of hot dogs, what will happen to the quantity of mustard purchased?

Answer 9

It will fall by 8 percent.

Question 10

Determinants of the price elasticity of demand for a good or service include:

Answer 10

the degree of necessity, its cost relative to income, the scope of the market, and the adjustment time.

Question 11

Suppose that an Australian worker can produce 12 units of kiwifruit in a year or 15 units of wheat, while a New Zealand worker can produce 3 units of kiwifruit in a year or 15 units of wheat. Each country has 10 people working in each activity. How much of each good do these countries produce if they specialize and produce only the good in which they have a comparative advantage?

Answer 11

Australia has a comparative advantage in kiwifruit and will produce 120 units if it specializes and only produces kiwifruit. New Zealand has a comparative advantage in wheat and will produce 150 units if it specializes and only produces wheat.

Question 12

The supply curve is a __________ line that reflects the _______ relationship between price and quantity supplied.

Answer 12

upward-sloping; direct

Question 13

Consider a market that is in equilibrium. If it experiences an increase in demand (all else staying the same), what will happen?

Answer 13

The demand curve will shift to the right, and the equilibrium price and quantity will rise.

Question 14

When income falls, the quantity of a good demanded:

Answer 14

falls if the good is a normal good and rises if the good is an inferior good.

Question 15

Which of the following statements is right?

Answer 15

The child benefit gives incentives to have more kids.

Question 16

Demand for a good that is a necessity would tend to be:

Answer 16

inelastic

Question 17

The law of supply describes the:

Answer 17

direct relationship between price and quantity supplied.

Question 18

Canada and the United States (U.S.) trade maple syrup and beets. If Canada has an absolute and a comparative advantage in the production of maple syrup, then:

Answer 18

The U.S. must have the comparative advantage in the production of beets.

Question 19

Which of the following statements about elasticity is correct?

Answer 19

Hammers are more price elastic than tools because the scope of the market is less broadly defined.

Question 20

The amount of a particular good that buyers in a market will purchase at a given price during a specified period is called:

Answer 20

quantity demanded.

Question 21

When an artificial price is imposed on a market in equilibrium…

Answer 21

There is a deadweight loss.

Question 22

When workers have different skills in producing two goods, the production possibilities frontier displays:

Answer 22

an increasing opportunity cost of goods’ production.

Question 23

When two goods are complements, their cross-price elasticity of demand is:

Answer 23

negative

Question 24

Which of the following is a normative statement?

Answer 24

Provincial governments should pay for the first two years of university at public institutions.

Question 25

Along a linear demand curve:

Answer 25

demand becomes more price inelastic as output increases.

Question 26

A company manufactures refrigerators and has plants in Germany and Turkey. A German worker produces 6 bundles of parts or assembles 3 refrigerators per day. In Turkey, a worker makes 1 bundle of parts or assembles 4 refrigerators. Which plant has a comparative advantage in producing parts, and which has a comparative advantage in assembling refrigerators?

Answer 26

Germany has a comparative advantage in producing parts. Turkey has a comparative advantage in assembling refrigerators.

Question 27

After purchasing a coffee cup from your local gas station for $5.00, you can always refill your cup for $0.50. The marginal cost of your 10th cup of coffee purchased at the gas station is:

Answer 27

$0.50.

Question 28

When the price of coffee beans decreases from $2 to $1.40 per pound, production decreases from 100 million pounds of coffee beans per year to 75 million pounds. Using the mid-point method, the percentage change in the quantity supplied is:

Answer 28

-28.57 percent

Question 29

When accounting profits are negative, economic profits:

Answer 29

Are negative.

Question 30

How long is the long run?

Answer 30

However long it would take a firm to vary all of its costs.

Question 31

You decide to buy your friend lunch after she helped you study for your exam. This is an example of the economic concept of:

Answer 31

reciprocity.

Question 32

Sadie has just eaten a donut and received a utility of 6. If she chooses to eat another donut, knowing that Sadie has diminishing marginal utility when eating donuts:

Answer 32

we can assume that she will get utility of less than 6 from eating the second donut.

Question 33

One market has elastic supply and demand curves, while a second market has inelastic supply and demand curves. If the government wants to reduce equilibrium output the most, in which market should a $1 tax be placed?

Answer 33

The market with elastic supply and demand curves should be taxed.

Question 34

If a firm experiences economies of scale when expanding its operations, its long-run ATC curve:

Answer 34

Slopes downwards.

Question 35

Rational individuals will make choices to maximize their:

Answer 35

utility.

Question 36

Marginal product is represented by:

Answer 36

The slope of the total product curve.

Question 37

Tom really likes to eat donuts. The utility he gets after eating his first donut is 20. A second donut yields a marginal utility of 15. The total utility of eating 3 donuts is 48. And a fourth donut yields a marginal utility of 10. Which of the following statements is wrong?

Answer 37

Tom’s marginal utility from eating the third donut is 33.

Question 38

Average variable costs:

Answer 38

Decrease, then increase as output increases.

Question 39

In the short run, when a firm stops producing:

Answer 39

It avoids paying variable costs.

Question 40

Sally only cares about eating pizza and going to the movies. She has an allowance of $50 per month to spend only on pizzas and movie tickets (he does not get utility from savings). The pizza price is $10 per pizza, and the price of the movie tickets is $10 per movie ticket. Her utility function is given by the following expression U = 3*P+ M/2. Where P is the number of pizzas that Sally buys and M the number of movie tickets that Sally buys. According to this information, which of the following statements is wrong?

Answer 40

If Sally is a rational individual, she will be indifferent between buying the following two combinations of pizzas and movie tickets: 2 pizzas and 3 movie tickets or 3 pizzas and 2 movie tickets.

Question 41

When average revenue is above average variable cost, the firm will:

Answer 41

cover its variable costs of production.

Question 42

If the demand curve is more elastic than the supply curve, then:

Answer 42

sellers will bear a greater tax incidence than buyers.

Question 43

 For a firm in a perfectly competitive market, if it produces where marginal cost exceeds marginal revenue: 

Answer 43

It should cut back production to increase profits.

Question 44

For a firm in a perfectly competitive market, a decrease in the market price:

Answer 44

Lowers profit-maximizing quantity.

Question 45

When firms enter a perfect competitive market, the supply increases and:

Answer 45

Price falls and profits decrease.

Question 46

 In a perfectly competitive market, when the price is greater than the minimum average total cost for most firms, some will: 

Answer 46

Enter until the price drops to equal minimum ATC.

Question 47

Diminishing marginal product causes:

Answer 47

The marginal cost curve to slope up.

Question 48

A deadweight loss arises from a tax because:

Answer 48

it induces buyers to consume less and sellers to produce less.

Question 49

When output is positive, a firm’s short-run supply curve is:

Answer 49

The section of its MC curve above its AVC curve.

Question 50

Economists who study economic mobility have found that the income of a grandfather and his grandson’s income are

Answer 50

not related

Question 51

Economists who attempt to explain the increasing earnings gap between skilled and unskilled workers offer two main hypotheses. Both hypotheses

Answer 51

emphasize the growing importance of women and teenagers in the workforce in recent years

Question 52

When firms are able to increase the amount of physical capital available to workers, the

Answer 52

value of the marginal product of labour will increase

Question 53

The labour supply curve reflects how

Answer 53

workers’ decisions about the labour-leisure tradeoff respond to a change in the wage

Question 54

A monopoly firm can sell 150 units of output for $12.00 per unit. Alternatively, it can sell 151 units of output for $11.95 per unit. The marginal revenue of the 151st unit of output is

Answer 54

$4.45

Question 55

When a monopolist increases the amount of output that it produces and sells, its average revenue

Answer 55

decreases and its marginal revenue decreases

Question 56

Patent and copyright laws are major sources of:

Answer 56

government-created monopolies

Question 57

For a profit-maximizing monopolist, at the level of output,

Answer 57

P > MR = MC

Question 58

In the long-run equilibrium of a market with free entry and exit, marginal firms are operating:

Answer 58

at the point where average total cost equals marginal cost

at the minimum point on their average total cost curves

at their efficient scale

Question 59

At the profit-maximizing level of output,

Answer 59

marginal revenue = marginal cost

Question 60

When price is greater than marginal cost for a firm in a competitive market,

Answer 60

there are opportunities to increase profit by increasing production

Question 61

Marginal cost increases as the quantity of output increases. This reflects the property of

Answer 61

diminishing marginal product

Question 62

Once it becomes obvious that a common resource is being overused, then:

Answer 62

it continues to be overused because individuals have no incentive to reduce their own use of the good

Question 63

Which of the following is NOT a reason why government agencies subsidize basic research?

Answer 63

The government attempts to attract the best and the brightest researchers

Question 64

Pigovian taxes differ from most taxes in that Pigovian taxes

Answer 64

enhance economic efficiency

Question 65

Pigovian taxes are preferred over regulations to deal with pollution because Pigovian taxes

Answer 65

reduce pollution at a lower cost to society

Question 66

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. The social cost of producing the steel includes the

Answer 66

private costs of the steel producers and the costs to the bystanders affected by the pollution

Question 67

If the labour supply curve is nearly vertical, a tax on labour:

Answer 67

has little impact on the amount of work workers are willing to do

Question 68

Inefficiency exists in any economy when a good is

Answer 68

not being consumed by buyers who value it most highly

Question 69

Refer to Figure 3. When a new, more productive way to grow strawberries was developed which caused supply to increase, strawberry farmers were

Answer 69

hurt, since both price and total revenue fell due to an inelastic demand curve

Question 70

Economists generally hold that rent control is:

Answer 70

a highly inefficient way to help the poor raise their standard of living

Question 71

A key determinant of the price elasticity of supply is:

Answer 71

the ability of sellers to change the amount of the good they produce

Question 72

If the number of sellers in a market increases, the

Answer 72

supply in that market will increase