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Question 1

Microeconomics is the branch of economics that deals with which of the following topics?
(a) the behavior of individual consumers
b) unemployment and interest rates
c) the behavior of individual firms and investors

Answer 1

a) the behavior of individual consumers
C) the behavior of individual firms and investors

Question 2

The problem of scarcity means that people face trade-offs. Which of the following trade-offs are the concern of microeconomics?
(a) Trade-offs faced by consumers in the purchase of goods
(b) Trade-offs faced by workers between work and leisure
(c) Trade-offs faced by firms in what goods to produce

Answer 2

(a) Trade-offs faced by consumers in the purchase of goods
(b) Trade-offs faced by workers between work and leisure
(c) Trade-offs faced by firms in what goods to produce

Question 3

Firms face trade-offs in production, including decisions related to:
a) which products to produce. (
b) how much of a particular product to produce. (
c) the best way to produce a given amount of output.

Answer 3

a) which products to produce. (
b) how much of a particular product to produce. (
c) the best way to produce a given amount of output.

Question 4

In the definition of a market, economists consider:
a) only actual interactions between buyers and sellers, not potential interactions.
b) both actual and potential interactions between buyers and sellers.
c) neither actual nor potential interactions between buyers and sellers.
d) actions by third parties that do not include buyers or sellers in the market.

Answer 4

b) both actual and potential interactions between buyers and sellers.

Question 5

To arbitrage a price difference between two markets, you should:
a) sell in the low-price market and buy in the high-price market.
b) buy in the low-price market and sell in the high-price market.
c) sell in both markets to capture a lower average “market price.”
d) none of the above

Answer 5

b) buy in the low-price market and sell in the high-price market.

Question 6

Suppose the price of crude oil is $95 per barrel in New York and $85 per barrel in Texas, and the transaction costs for trading between the two markets are $15 per barrel. What actions should you take to arbitrage this price difference?
(a) Buy oil in Texas and sell oil in New York
(b) Do not buy or sell oil in either market
(c) Sell oil in Texas and buy oil in New York
(d) Buy oil in both markets and wait for higher price

Answer 6

b) Do not buy or sell oil in either market

Question 7

The price of a taco was $0.29 in 1970 and $1.09 in 2017. The CPI was 38.8 in 1970 and 172.2 in 2017. The 2017 price of a taco in 1970 dollars is:
A) 0,25
B) 0,29
C) 1,09
D) 4,84

Answer 7

0,25

Question 8

A supply curve reveals:
a) the quantity of output consumers are willing to purchase at each possible market price.
b) the difference between quantity demanded and quantity supplied at each price.
c) the maximum level of output an industry can produce, regardless of price.
d) the quantity of output that producers are willing to produce and sell at each possible market price.

Answer 8

d) the quantity of output that producers are willing to produce and sell at each possible market price.

Question 9

When the current price is above the market-clearing level we would expect: (
a) a shortage (
b) quantity supplied to exceed quantity demanded. (
c) greater production to occur during the next period. (
d) quantity demanded to exceed quantity supplied.

Answer 9

b) quantity supplied to exceed quantity demanded

Question 10

At the current price, the market of pens exhibits an excess of supply. The following statement holds: (
a) Demand is higher than supply and price will increase. (
b) Demand is higher than supply and price will decrease. (
c) Demand is lower than supply and price will decline. (
d) Demand is lower than supply and price will increase.

Answer 10

c) Demand is lower than supply and price will decline. (

Question 11

If an increase in the price of one good leads to an increase in the quantity demanded of another, the
two goods are: (
a) substitutes (
b) complements
(c) independent
(d) unrelated

Answer 11

A) substitutes

Question 12

Assume that steak and potatoes are complements. When the price of steak goes up, the demand
curve for potatoes:
a) shifts to the left.
b) shifts to the right.
c) remains constant.
d) shifts to the right initially and then returns to its original position.

Answer 12

a) shifts to the left.

Question 13

Elasticity measures:
a) the slope of a demand curve.
b) the inverse of the slope of a demand curve.
c) the percentage change in one variable in response to a one percent increase in another variable.
d) sensitivity of price to a change in quantity.

Answer 13

c) the percentage change in one variable in response to a one percent increase in another variable.

Question 14

Lucilla consumes one cappuccino irrespectively of the price: (
a) Lucilla exhibits a demand line which has zero elasticity. (
b) Lucilla exhibits a demand line which has infinite elasticity. (
c) Lucilla exhibits a demand line which has elasticity equal to one. (
d) None of the statements above is true.

Answer 14

a) Lucilla exhibits a demand line which has zero elasticity

Question 15

Food Clothing
A 6 3
B 8 5
C 5 8

Look at the table above. Assuming preferences follow the four basic rules:
(a) A is on the same indifference curve as B.
(b) B is on the same indifference curve as C.
(c) A is preferred to C.
(d) B is preferred to A.
(e) Both A and B are correct.

Answer 15

(d) B is preferred to A.

Question 16

2. If prices and income in a two-good economy double, what happens to the budget

(a) The intercepts increase.
(b) The intercepts decrease.
(c) The slope may increase or decrease.
(d) Not enough information.
(e) The budget line stays the same.

Answer 16

(e) The budget line stays the same.

Question 17

A consumer maximizes satisfaction when their willingness to trade pizzas (good X) for burgers (good Y) equals:
(a) The slope of the indifference curve at that point.
b) The inverse of the slope of the indifference curve at that point.
c) Ppizza/Pburger
(d) Pburger/Ppizza
(e) Not enough information.

Answer 17

c) Ppizza/Pburger

Question 18

Sandwiches cost $0.10 each, and drinks cost $0.50 each. Every semester, Alice
buys 5 drinks and 1 sandwich. Her marginal rate of substitution (MRS) between sandwiches and drinks is 3. What can we conclude about Alice’s choices?
(a) Alice could improve her satisfaction by buying more drinks and fewer sand-
wiches.
b) Alice could improve her satisfaction by buying more sandwiches and fewer
drinks.
c) Alice is at a corner solution and is maximizing her satisfaction.
d) Alice’s preferences treat sandwiches and drinks as perfect substitutes.
e) There isn’t enough information to determine.

Answer 18

b) Alice could improve her satisfaction by buying more sandwiches and fewer

Question 19

Monica spends all her money on coffee (good A) and bagels (good B). Her happiness
from drinking coffee increases by 1
QA
for every extra cup, and her happiness from
eating bagels increases by 1
QB
for every extra bagel. Coffee costs $0.50 per cup,
bagels cost $4.00 each, and Monica has $120 to spend. How many cups of coffee
will Monica buy to maximize her satisfaction?
(a) 0. (b) 48. (c) 100. (d) 120. (e) Not enough information.

Answer 19

D. 120

Question 20

The production function describes the relationship between output and
inputs with a given technology, which indicates:
(a) the maximum level of profits for each input used
(b) the maximum level of output for each specific combination of inputs
c) the level of output produced if no additional inputs are hired (d) the lowest cost of production, given the available inputs
(e) none of the above

Answer 20

b) the maximum level of output for each specific combination of inputs

Question 21

Joe owns a small coffee shop, and his production function is q = 3K L
where q is total output in cups per hour, K is the number of coffee ma-
chines, and L is the number of employees hired per hour. If Joe’s capital
is currently fixed at K = 3 machines, what is his short-run production
function?
(a) q = 3L (b) q = 3L2 (c) q = 9L (d) q = 3K 2 (e) q = 6L

Answer 21

c) q = 9L

Question 22

At any given point on the curve, the slope of the total product curve
equals:
1
(a) the marginal product of the input
b) the average product of the input
c) the ratio of the marginal product and the average product (d) the marginal rate of technical substitution
e) the change in input divided by the change in output

Answer 22

a) the marginal product of the input

Question 23

The average product of labor (APL) curve and the marginal product of
labor (M PL) curve intersect:
(a) when the marginal product of labor is at its maximum
b) when the average product of labor is at its maximum
c) when the marginal product of labor becomes negative
d) when the average product of labor is at its minimum
e) never

Answer 23

b) when the average product of labor is at its maximum

Question 24

. A car detailing business has a fixed amount of machinery, but it has re-
cently increased the number of employees hired per hour from 3 to 5, and
so the total output increased by 5 cars to 15 cars per hour. What is the
average product of labor at the new level of labor?
a) AP = 3 cars per worker
b) AP = 5 cars per worker
c) AP = 4 cars per worker
d) AP = 10 cars per worker
e) We do not have enough information to answer this question

Answer 24

a) AP = 3 cars per worker

Question 25

According to the law of diminishing marginal returns, when one or more inputs are fixed, a variable input (i.e. labor) is likely to have: (a) a marginal product that eventually increases as the level of input increases (b) a marginal product that must be negative as the level of input in- creases (c) a total product that will eventually be negative as the level of input increases (d) a marginal product that eventually diminishes as the level of input increases (e) an average product that must be negative as the level of input in- creases

Answer 25

d) a marginal product that eventually diminishes as the level of input increases

Question 26

If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as the: (a) rate at which the firm can replace capital with labor without changing the output rate (b) average rate at which the firm can replace capital with labor without changing the output rate (c) marginal product of labor (d) marginal product of capital (e) rate at which the firm cannot replace capital and labor for changing the output rate

Answer 26

a) rate at which the firm can replace capital with labor without changing the output rate

Question 27

At L = 4 and K = 4, the marginal product of labor is 2 and the marginal product of capital is 3. What is the marginal rate of technical substitu- tion?: a) We do not have enough information to answer this question (b) 5 c) 0 D) 1/3 E) 2/3

Answer 27

E) 2/3

Question 28

Isoquants that are downward-sloping straight lines exhibit: (a) an increasing marginal rate of technical substitution (b) a decreasing marginal rate of technical substitution (c) a constant marginal rate of technical substitution (d) a marginal rate of technical substitution that cannot be determined (e) a marginal rate of technical substitution that first increase and then decrease

Answer 28

c) a constant marginal rate of technical substitution

Question 29

With increasing returns to scale, isoquants for unit increases in output become: (a) farther and farther apart b) the same distance apart c) straight lines d) closer and closer together e) none of the above

Answer 29

d) closer and closer together

Question 30

In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive, but can be resold, and are therefore an example of: (a) Fixed cost (b) Variable cost c) Implicit cost d) Opportunity cost e) Sunk cost

Answer 30

Fixed cost

Question 31

Fixed costs are fixed with respect to changes in: (a) Time (b) Capital expenditure (c) Wages (d) Output

Answer 31

Output

Question 32

Fixed costs are fixed with respect to changes in: (a) Time (b) Capital expenditure (c) Wages (d) Output

Answer 32

Output

Question 33

The total cost of producing computer software diskettes is given as: T C = 200 + 5Q. What is the fixed cost? (a) 5Q b) 200 c) 5 (d) 5 + 200 /Q

Answer 33

200

Question 34

In a short-run production process, the marginal cost is rising and the average total cost is falling as output is increased. Thus, the marginal cost is: (a) Below average total cost b) Above average total cost c) Between the average variable and average total cost curves d) Below average fixed cost

Answer 34

Below average total cost

Question 35

Incremental cost is the same concept as ... cost: (a) Average (b) Marginal (c) Fixed (d) Variable

Answer 35

Marginal

Question 36

6. Which of the following costs always declines as output increases? (a) Average cost (b) Marginal cost (c) Fixed cost (d) Average fixed cost

Answer 36

Average fixed cost

Question 37

The isocost line reveals the (a) Cost of inputs needed to produce along an isoquant (b) Cost of inputs needed to produce along an expansion path (c) Input combinations that can be purchased for a given total cost (d) Output combinations that can be produced with a given outlay of funds

Answer 37

c) Input combinations that can be purchased for a given total cost

Question 38

A firm’s expansion path is: (a) the firm’s production function (b) a curve that makes the marginal product of the last unit of each input equal for each output c) a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices d) none of the above

Answer 38

c) a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices

Question 39

Which of the following is NOT an expression for the cost-minimizing com- bination of inputs? (a) MRST = MPL / MPK b) MPL/w = MPK/r (c) MRST = w/r (d) MPL/ MPK =w/r (e) none of the above

Answer 39

a) MRST = MPL / MPK

Question 40

A price taker is: (a) a firm that accepts different prices from different customers. b) a consumer who accepts different prices from different firms. c) a firm that accepts prices as given. d) a firm that cannot influence the market price. e) both C and D

Answer 40

Both c and d

Question 41

Marginal profit is equal to (a) marginal revenue minus marginal cost. b) marginal revenue plus marginal cost. c) marginal cost minus marginal revenue. d) marginal revenue times marginal cost. e) marginal revenue divided by marginal cost.

Answer 41

(a) marginal revenue minus marginal cost.

Question 42

Because of the relationship between a perfectly competitive firm’s demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as: (a) P = MR. (b) P = AVC. (c) AR = MR. (d) P = MC. (e) P = AC.

Answer 42

P=MC

Question 43

Higher input prices result in: (a) upward shifts of MC and reductions in output. b) upward shifts of MC and increases in output. c) downward shifts of MC and reductions in output. d) downward shifts of MC and increases in output. e) increased demand for the good the input is used for.

Answer 43

a) upward shifts of MC and reductions in output.

Question 44

The supply curve for a competitive firm is a) its entire MC curve. (b) the upward-sloping portion of its MC curve. c) its MC curve above the minimum point of the AVC curve. d) its MC curve above the minimum point of the ATC curve. e) its MR curve.

Answer 44

c) its MC curve above the minimum point of the AVC curve.

Question 45

Producer surplus in a perfectly competitive industry is: (a) the difference between profit at the profit-maximizing output and profit at the profit- minimizing output. b) the difference between revenue and total cost. c) the difference between revenue and variable cost. d) the difference between revenue and fixed cost. (e) the same thing as revenue.

Answer 45

c) the difference between revenue and variable cost.

Question 46

Firms often use patent rights as a: (a) barrier to exit. (b) barrier to entry. (c) way to achieve perfect competition. (d) none of the above

Answer 46

Barrier to entry

Question 47

If the market price for a competitive firm’s output doubles, then: a) the profit maximizing output will double. b) the marginal revenue doubles. c) at the new profit maximizing output, price has increased more than marginal cost. d) at the new profit maximizing output, price has risen more than marginal revenue. e) competitive firms will earn an economic profit in the long-run.

Answer 47

The marginal revenue doubles

Question 48

If current output is less than the profit-maximizing output, then the next unit produced a) will decrease profit. b) will increase cost more than it increases revenue. c) will increase revenue more than it increases cost. d) will increase revenue without increasing cost. e) may or may not increase profit.

Answer 48

c) will increase revenue more than it increases cost.

Question 49

An improvement in technology would result in: (a) upward shifts of MC and reductions in output. b) upward shifts of MC and increases in output. (c) downward shifts of MC and reductions in output. d) downward shifts of MC and increases in output.

Answer 49

d) downward shifts of MC and increases in output.

Question 50

Consumer surplus measures: (a) the extra amount that a consumer must pay to obtain a marginal unit of a good or service b) the excess demand that consumers have when a price ceiling holds prices below their equilibrium (c) the benefit that consumers receive from a good or service beyond what they pay d) the gain or loss to consumers from price fixing

Answer 50

c) the benefit that consumers receive from a good or service beyond what they pay

Question 51

Producer surplus is measured as the: (a) area under the demand curve above market price (b) entire area under the supply curve (c) area under the demand curve above the supply curve (d) area above the supply curve up to the market price

Answer 51

d) area above the supply curve up to the market price

Question 52

A situation in which the unregulated competitive market outcome is inef- ficient because prices fail to provide proper signals to buyers and sellers is known as: (a) an imperfectly competitive market (b) a market failure (c) a deadweight loss (d) a disequilibrium

Answer 52

A market failure

Question 53

When the Government intervenes by imposing an effective price ceiling, we would expect the quantity supplied to . . . and the quantity demanded to . . . (a) fall; rise (b) fall; fall (c) rise; rise (d) rise; fall

Answer 53

Fall, rise

Question 54

Import tariffs generally result in: (a) higher domestic prices (b) less consumer surplus (c) more producer surplus for domestic producers (d) a deadweight loss (e) all of the above

Answer 54

All of the above

Question 55

What is the welfare impact of a subsidy policy? (a) Producer surplus increases, consumer surplus declines, and total welfare declines (b) Producer and consumer surplus increase, and these gains are larger than the government cost (c) Producer and consumer surplus increase, and these gains are smaller than the government cost (d) Producer surplus increases, consumer surplus declines, and total welfare increases due to the subsidy program

Answer 55

(c) Producer and consumer surplus increase, and these gains are smaller than th

Question 56

Suppose a competitive market is in equilibrium. If the demand curve becomes less elastic, but the same price-quantity equilibrium is maintained, what happens to consumer and producer surplus? (a) Both PS and CS increase (b) CS increases and PS decreases (c) CS increases and PS remains the same (d) Both CS and PS decrease

Answer 56

c) CS increases and PS remains the same

Question 57

What is the difference between a price support and a price floor? (a) A price support is below equilibrium; a price floor is above it. (b) A price support is above equilibrium; a price floor is below it (c) Government buys the excess supply to maintain a price floor, but not a price support. d) Government buys the excess supply to maintain a price sup- port, but not for a price floor. (e) There is no difference between the two.

Answer 57

c) Government buys the excess supply to maintain a price floor, but not a price support.

Question 58

In a monopolistic market, when the demand curve is downward sloping, marginal revenue is: (a) equal to price (b) equal to average revenue (c) less than price (d) more than price (e) none of the above.

Answer 58

c) less than price

Question 59

Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will: (a) charge higher price and sell a larger quantity b) charge lower price and sell a larger quantity c) charge higher price and sell a smaller quantity d) charge lower price and sell a smaller quantity e) none of these.

Answer 59

c) charge higher price and sell a smaller quantity

Question 60

Monopoly power results from the ability to: (a) set price equal to marginal cost (b) equate marginal cost to marginal revenue c) set price above average variable cost d) set price above marginal cost e) none of these.

Answer 60

None

Question 61

The marginal cost of a monopolist is constant and is $10. The marginal revenue curve is given as follows: M R = 100 − 2Q. The profit-maximizing price is: a) $70 (b) $65 (c) $60 (d) $55 (e) $50.

Answer 61

50

Question 62

In 2009, the price of Amazon’s Kindle 2 was $359, and its marginal cost was estimated to be $159. What was Amazon’s Lerner Index?: (a) 0.335 (b) 0.450 (c) 0.557 (d) 0.602 (e) 0.750.

Answer 62

0,557

Question 63

If the firm’s demand is elastic: (a) the markup is large and the firms have little monopoly power (b) the markup is small and the firms have little monopoly power (c) the markup is small and the firms have considerable monopoly power (d) the markup is large and the firms have considerable monopoly power (e) none of the above.

Answer 63

b) the markup is small and the firms have little monopoly power

Question 64

Compared to a perfectly competitive market, monopoly power: (a) generates deadweight loss by producing at the socially optimal level of output, where supply equals demand b) creates deadweight loss by producing less and charging a higher price than would occur in a competitive market, leading to inefficiency. (c) does not generate deadweight loss, as monopolists always maximize social welfare (d) causes deadweight loss by setting the price equal to marginal cost, which encourages excessive production and inefficiency (e) eliminates deadweight loss by driving down prices and increasing con- sumer welfare.

Answer 64

b) creates deadweight loss by producing less and charging a higher price than would occur in a competitive market, leading to inefficiency.

Question 65

A monopsonist will: a) buy fewer units of input and pay less per unit than in a competitive market (b) buy more units of input and pay less per unit than in a competitive market (c) buy fewer units of input and pay more per unit than in a competitive market (d) buy more units of input and pay more per unit than in a competitive market (e) none of the above

Answer 65

a) buy fewer units of input and pay less per unit than in a competitive

Question 66

For a monopsonist: (a) marginal revenue is less than average revenue (b) marginal expenditure is lower than average expenditure (c) marginal expenditure and average expenditure are constant and equal (d) marginal renevue and average revenue are constant and equal (e) marginal expenditure is greater than average expenditure.

Answer 66

e) marginal expenditure is greater than average expenditure.

Question 67

In the Federal Trade Commission (FTC)’s lawsuit against Facebook, the FTC has asserted that the company is illegally maintaining its monopoly in the personal social networking market. Which of the following best explains the primary concern of antitrust laws in this case?: (a) The FTC is concerned that Facebook’s dominance is stifling compe- tition and innovation in the social networking space 3 (b) The FTC is worried that Facebook’s growth through acquisitions, such as Instagram and WhatsApp, will lead to better services for consumers (c) The FTC believes that Facebook should be allowed to continue ac- quiring smaller competitors to improve its market position (d) The FTC seeks to promote Facebook’s ability to set higher prices for its services in order to maximize profits (e) The FTC is focused on ensuring that Facebook does not face any competition from smaller social networks.

Answer 67

a) The FTC is concerned that Facebook’s dominance is stifling compe- tition and innovation in the social networking space

Question 68

In a monopoly, the firm aims to maximize profits by setting the optimal condition: (a) Price = Marginal Cost (b) Marginal Revenue = Price (c) Marginal Revenue = Marginal Cost (d) Average Total Cost = Marginal Cost

Answer 68

Mc = mr

Question 69

In a monopoly, compared to a competitive market solution, we typically observe: (a) higher quantity, higher price (b) higher quantity, lower price (c) lower quantity, higher price (d) lower quantity, lower price

Answer 69

lower quantity, higher price

Question 70

In a perfect discrimination monopoly, the consumer surplus is equal to . . . , while the producer surplus equals to . . . , so that the deadweight loss is . . . (a) the entire social welfare; zero; maximized (b) half of the social welfare; half of the social welfare; positive (c) zero; the entire social welfare; zero (d) zero; the entire social welfare; positive

Answer 70

c) zero; the entire social welfare; zero

Question 71

In a third degree price discrimination, the monopolist: (a) discriminates based on observable characteristics of the consumers b) discriminates based on non-observable characteristics of the consumers c) discriminates based on quantity purchased d) discriminates based on preferences of the consumer

Answer 71

(a) discriminates based on observable characteristics of the consumers

Question 72

In a third degree price discrimination, the optimal condition for the monopolist is: (a) M C1 = M C2 = P (b) P = M R1 e M R2 = M C2 (c) M R1 = M C1 e M R2 = P (d) M R1 = M R2

Answer 72

d) M R 1 = M R2

Question 73

In a third degree price discrimination, a monopolist can discriminate comparing the markets for youngers, which are more sensitive to price change, and adults, which are less sensitive to price change. Then: (a) the price will be the same on both markets (b) the price will be higher on the markets for youngers c) the price will be higher on the markets for adults d) we cannot say anything without the cost function

Answer 73

c) the price will be higher on the markets for adults

Question 74

The monopolist does not gain anything from bundling if: (a) there are more goods than consumers (b) demands are negatively correlated (c) demands are positively correlated (d) it’s not possible to do a mixed bundling

Answer 74

c) demands are positively correlated

Question 75

When the market price is held above the competitive level, the deadweight loss is composed of: a. producer surplus losses associated with units that used to be traded on the market but are no longer exchanged. b. producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged. c. consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged. d. there is no deadweight loss if the government uses a price floor policy to increase the price.

Answer 75

b. producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

Question 76

The difference between the economic and accounting costs of a firm are: a. the corporate taxes on profits B.the opportunity costs of the factors of production that the firm owns C.the sunk costs incurred by the firm d. the accountant's fees

Answer 76

B.the opportunity costs of the factors of production that the firm owns

Question 77

The effect of a decrease in the price of food, as depicted in the figure, leads us to believe that: a. food is an inferior good and clothing a Giffen good. b. food is a normal good and clothing a Giffen good. ) C. food is a Giffen good and clothing a normal good D. food is a Giffen good and clothing an inferior good.

Answer 77

C. food is a Giffen good and clothing a normal good

Question 78

Assume that average product for 6 workers is 15. If the marginal product of the seventh worker is 18: a. average product is falling. b. marginal product is falling. c. marginal product is rising. d. average product is rising.

Answer 78

D

Question 79

Assume that average product for 6 workers is 15. If the marginal product of the seventh worker is 18: a. average product is falling. b. marginal product is falling. c. marginal product is rising. d. average product is rising.

Answer 79

D