SS 4. Economics: Microeconomic Analysis

Question 1

In indifference curve analysis, when the price of one of the goods under consideration decreases, then the:

Answer 1

slope of the budget-constraint line will change.

Question 2

Assume economic activity is accelerating, inflation is increasing modestly, and unemployment is low. The economy is most likely in which phase of the business cycle?

Answer 2

Late expansion

Question 3

Under conditions of perfect competition, in the long run companies will most likely earn:

Answer 3

normal profit and zero economic profit.

Question 4

‘The division of tax between buyers and sellers’ is a definition of:

Answer 4

Tax incidence

Question 5

Which curve is the same as the short-run supply curve for a firm in a perfectly competitive market?

Answer 5

The marginal cost curve

Question 6

The excess burden that results from an excise tax is also called:

Answer 6

A deadweight loss

Question 7

The firm elasticity in a perfectly competitive market is:

Answer 7

Infinite

Question 8

Substitute goods have _______ cross price elasticity of demand

Answer 8

Positive

Question 9

Another name for a competitive price searcher market is:

Answer 9

Monopolistic competition

Question 10

A firm receives a producer surplus when:

Answer 10

Market price exceeds marginal cost

Question 11

According to the concept of money neutrality, over the long term, the money supply is least likely to affect:

Answer 11

the real rate of interest.

Question 12

Within the framework of the purely competitive model, the seller will always produce the quantity of output that:

Answer 12

maximises the firm’s profit (or minimizes its loss)

Question 13

How is price decided in monopolistic competition?

Answer 13

On the basis of the quantity produced which is derived at a point where MC=MR.

Question 14

When demand is elastic, a lower price will:

Answer 14

always increase total revenue

Question 15

In a decreasing-cost industry, the long-run supply curve will most likely be:

Answer 15

negatively sloped.

Question 16

A decrease in the price of a good will most likely be reflected in a:

Answer 16

downward movement along the supply curve.

Question 17

Complementary goods have _______ cross price elasticity of demand

Answer 17

Negative

Question 18

Suppose that inflation increases due to higher capacity utilization. Such inflation is best described as:

Answer 18

Demand-pull inflation

Question 19

A monopolistically competitive firm maximises profit by producing where:

Answer 19

MR = MC

Question 20

What is the difference between Scarcity and Shortage?

Answer 20

Scarcity is always present, but a shortage would be eliminated if the price of the product were permitted to rise.

Question 21

Introducing regulation to a natural monopoly should:

Answer 21

Increase quantity sold and reduce the price

Question 22

Assume that a central bank has decided to lower interest rates in the economy. To carry out this policy, the central bank will most likely:

Answer 22

increase required reserve requirements.

In implementing monetary policy, central banks have three primary tools available to them: open market operations, setting the official policy rate, and reserve requirements. When the central bank purchases securities (open market operations), it increases the reserves held by private sector banks. These increased reserves lead to a reduction in interest rates on money market securities and, ultimately, to a reduction in other interest rates in the economy

Question 23

A four-firm concentration ratio that exceeds __% is highly concentrated and dominated by a few firms in an oligopoly

Answer 23

60%

Question 24

For a country to gain from trade, it must have:

Answer 24

a comparative advantage.

Question 25

The long-run supply curve for a product differs from the short-run supply curve in that the long-run supply curve is usually:

Answer 25

more elastic

Question 26

With respect to the relationship between output and costs in the short run, a decline in the marginal cost per unit most likely occurs at what level of production?

Answer 26

Low output

Marginal cost per unit, in the short run, decreases at low levels of output as a result of economies from greater specialization. At higher levels of output, however, it eventually increases because of the law of diminishing returns.

Question 27

Name 4 characteristics of Monopolistic Competition:

Answer 27

A large number of firms

Each firm produces a differentiated product

Firms are free to enter and exit

Firms compete on quality, price and marketing

Question 28

With respect to the relationship between output and costs in the short run, a decline in the marginal cost per unit occurs at what level of production?

Answer 28

Low output

Question 29

N-firm concentration ratio is:

Answer 29

Used to identify the market structure of an industry

Question 30

Under imperfect competition, maximum profit is best described as occurring at the output level at which:

Answer 30

Maximum profit occurs at the output level at which the difference between total revenue and total costs is greatest.

Question 31

Regarding the Herfindahl-Hirschmann Index, the U.S. government considers values above ____ as moderately uncompetitive.

Answer 31

1,800

sum of the squares of the market shares for the largest firms in the industry

Question 32

A firm in a perfectly competitive environment has its total costs equal to total revenue and marginal costs greater than marginal revenue. Given this, the firm should:

Answer 32

decrease its level of production to enter profit territory.

Question 33

From the standpoint of economic efficiency, an unregulated private economy tends to allocate:

Answer 33

too many resources into producing goods which generate substantial external costs.

Question 34

Collusion among oligopolistic firms is more likely when demand is:

Answer 34

Stable