Microeconomics Final Approved Exam 2025

Microeconomics Final Approved Exam 2025 Because resources are scarce relative to wants, the study of economics concerns - ANS-how individuals, businesses, and governments make choices Macroeconomics deals with ________ while microeconomics deals with ________ - ANS-economy wide choices; choices of individuals One topic of study for a macroeconomist would be the - ANS-effects of a gasoline price increase on consumer behavior. The study of an individual's choice about what type of computer to buy is a subject of - ANS-microeconomics In a market system, ________ provide signals about whether resources are relatively scarce or abundant - ANS-prices The United States is best known as a - ANS-mixed economic system. If people act as if they systematically pursue their own self-interest, then they will most likely - ANS-respond predictably to a given incentive Economists assume people behave rationally, which means that people - ANS-do not intentionally make decisions that make themselves worse off. Sara looks into her closet and discovers a pair of like-new shoes she no longer wears because they are out of fashion. From the economist's perspective, was Sara behaving rationally when she bought those shoes? - ANS-Yes, Sara didn't buy those shoes when they were out of fashion. When people donate money to a charity, they behave - ANS-rationally if the act gives them satisfaction Jose is rational if he - ANS-does not intentionally make decisions that would leave him worse off The assumption underlying economic theory is that - ANS-choices are affected by incentives. Economists develop models to - ANS-help us understand economic phenomena in the real world MICROECONOMICS MICROECONOMICS An economic model should capture - ANS-the essential relationships that help to analyze the problem Which of the following is an example of an application of the ceteris paribus assumption? - ANS-an analysis of how price changes affect how much of a good people will purchase when all other factors are held constant The assumption that "other things are constant" is also known as the - ANS-ceteris paribus assumption. Why is economics called an empirical science? - ANS-because economics relies on real-world data to determine the usefulness of a model A difference between biology and economics is that - ANS-biologists often use laboratory experiments and economists do less often "Ceteris paribus" assumption means - ANS-that nothing else changes except the variables under consideration. The combination of psychology and economics to determine individual decision making is known as - ANS-behavioral economics. Behavioral economics deals with - ANS-bounded rationality. Which of the following is a positive economic statement? - ANS-The rate of unemployment of young African-Americans exceeds that of white Americans Which of the following statements is a positive economic statement? - ANS-The President's budget included an increase in unemployment insurance payments Which of the following is a normative economic statement? - ANS-Teenage unemployment is too high for the United States If an increase in one variable causes a decrease in another variable, this is - ANS-a negative relationship. The relationship between the number of hours a student studies for an exam and the exam grade is most likely graphed as - ANS-a line sloping up from lower left to upper right. Scarcity refers to - ANS-the inability of society to satisfy all human wants because of limited resources In 2016, tornadoes damaged many parts of the U.S. Midwest, destroying homes, businesses, schools, and infrastructure. In strictly economic terminology, these MICROECONOMICS MICROECONOMICS tornadoes are said to have caused - ANS-shortages, because supplies were cut off and goods were destroyed. Which of the following is the best example of scarcity? - ANS-Fred only gets a 10-hour lunch break and each day must decide between working out at the gym or socializing with his colleagues Entrepreneurs are important to market economies because - ANS-they engage in risk taking and innovation. Which of the following activities are production? - ANS-A) combining flour, milk, and eggs to make cookies B) moving crude oil from one part of Texas to an oil refinery near the Texas coast C) taking ice cubes from a tray to put in a drink *D) All of the above are production. Opportunity cost - ANS-is always the value of the next best forgone opportunity Bill Bonecrusher graduates from college with a choice of playing professional football at $2 million a year or coaching for $50,000 a year. He decides to play football, but eight years later he quits football to make movies for $3 million a year. His opportunity cost at graduation was ________ and eight years later was ________. - ANS-$50,000; $2 million Matt and Ann both decide to go to a concert with free tickets. We know that - ANS-both bear an opportunity cost since they could have done other things instead of see the concert. Stephanie has decided to eat lunch between classes. She has ranked her choices, from highest to lowest as, (1) turkey sandwich, (2) tuna sandwich, (3) slice of cheese pizza, (4) cheeseburger. The opportunity cost of the eating turkey sandwich is - ANS-the value of tuna sandwich, the next best choice. The production possibilities curve represents the maximum feasible production combinations resulting from - ANS-the mix of current resources that utilizes all available inputs using current technology. People always face trade-offs because - ANS-they always have more than one use for their time and money A country operates inside its production possibilities curve; this may be caused by - ANS-unemployed resources The production possibilities curve can shift inward when - ANS-a country experiences a natural disaster MICROECONOMICS MICROECONOMICS Specialization can occur because - ANS-varying skills differentiate workers. If individual X has comparative advantage in painting and individual Y has comparative advantage in carpentry, then - ANS-there is a lower opportunity cost (expressed in units of carpentry) for individual X to paint than for individual Y to paint If Irene can make either four chairs or one table in an hour and Greg can make either three chairs or two tables in an hour, then - ANS-Irene has the comparative advantage in the production of chairs The law of demand includes the statement "other things being equal." These other things include all of the following EXCEPT - ANS-the price of that good in the law of demand The law of demand is based on the observation that - ANS-people buy more of a product when its price falls. According to the law of demand, a decrease in the price of a good causes - ANS-a downward movement along the demand curve for that good Which of the following is an example of the law of demand - ANS-A decrease in the price of tea is followed by an increase in tea purchases. The price of a gallon of gasoline increased from $2.00 to $2.25 while the price of a ride on the city bus increased from 50 cents to 75 cents. The relative price of riding the city bus - ANS-increased from 0.25 to 0.6. Which of the following statements is FALSE about the demand curve? - ANS-An increase in demand shifts the demand curve to the left, closer to the price axis Suppose that jeans that were fashionable in the 1990s become unfashionable today. If other factors were held constant, then there would be in the market of jeans - ANS-a leftward shift in the demand curve. Suppose that jeans that were fashionable in the 1990s become unfashionable today. If other factors were held constant, then there would be in the market of jeans - ANS-a leftward shift in the demand curve If goods X and Y are substitute goods, then an increase in the price of Y, other things being equal, - ANS-results in a decrease in the quantity of Y consumed, but increases the demand for X. If two goods, J and K, are complements, then which of the following statements is FALSE? - ANS-An increase in the price of J causes the demand for K to rise MICROECONOMICS MICROECONOMICS Which of the following statements is correct? - ANS-A shortage occurs when the quantity demanded is greater than the quantity supplied at a price below the market clearing price. Which of the following situations could generate a shortage? - ANS-Demand for a good increases, but the price is not permitted to rise. The price of coffee increases. Which of the following is NOT part of the likely chain of events that follows from this price change? - ANS-The manufacturers of coffee machines lay off some workers The market system is also called the price system because - ANS-rising prices are the signal to producers to offer more of a particular good Suppose the price of pepperoni falls. In the market for pizza, in which pepperoni of a popular ingredient, one would expect that - ANS-the supply of pizza would increase, and the price would fall In recent years, the price of smartphones has fallen, while the quantity exchanged of smartphones has risen. We can conclude that this is most likely a result of - ANS-an increase in supply that exceeded an increase in demand. If price increases and the quantity purchased increases, we know that - ANS-demand increased. An increase in demand and an increase in supply will lead to - ANS-an unambiguous increase in quantity, but the effect on price is indeterminate. Suppose new research shows that soy milk and other products derived from soybeans provide more health benefits than previously thought. At the same time, drought conditions result in extensive damage to the soybean crop. What will be the combined impact of these two factors on the equilibrium price and quantity of soybeans? - ANS Price will increase, but the effect on quantity is indeterminate Suppose that 20,000 tickets were sold at $120 for an NBA game at Madison Square Garden in New York. The game was sold out and some fans could not get tickets. This suggests that - ANS-selling price was below equilibrium price All of the following result from price floors in agriculture EXCEPT - ANS-lower prices to consumers for agricultural products that have price floors. If the price of coffee increases from $2.50 per cup to $3.00 per cup and the quantity demanded goes down from 120 cups per week to 115 cups per week, the absolute value of price elasticity of demand in that price range is approximately - ANS-0.23. MICROECONOMICS MICROECONOMICS If the price of nacho chips increases from $2.00 per bag to $3.00 per bag and the quantity demanded goes down from 100 million bags per week to 50 million bags per week, the absolute value of price elasticity of demand in that price range is - ANS-1.67 No matter what the price of orange juice is , Jill spends $20 a week on orange juice. We can conclude that the absolute value of the price elasticity of demand for orange juice for Jill is - ANS-equal to 1 Suppose 1000 units of a good are sold at $10 a unit. If its price increases to $20 and total revenue increases to $20,000 and increases by $1000 for every dollar increase in price after that, we know that - ANS-the demand curve is vertical Robert must always have sugar in his coffee. For Robert, the cross price elasticity of demand for coffee and sugar is - ANS-negative. Charlie's income went from $1000 per week to $1500 per week. As a result he increased his consumption of beef from 1 pound a week to 3 pounds a week. Based on his consumption patterns, the income elasticity of beef for Charlie is - ANS-2.50 Suppose the demand for rental apartments decreased substantially. We would expect to observe - ANS-a small decrease in quantity supplied and significantly lower rents in the short run, and quantity supplied to decrease much more in the long run. The price elasticity of supply is 6. This means that - ANS-a 10 percent increase in price would increase quantity supplied by 60 percent. The total utility from consuming 8 units of a good is 155. The marginal utility of the 8th unit is 7 and the marginal utility of the 7th unit is 11. The total utility from consuming 6 units of the good is - ANS-137 At a ball game we can observe people eating hot dogs, french fries, and hamburgers. If all are priced the same and we observe Michelle eating a hot dog and David eating a hamburger, we can conclude that - ANS-at this time Michelle derives more utility from eating a hot dog than from eating either a hamburger or french fries, while David derives more utility from eating a hamburger than from eating either a hot dog or french fries Kelly has decided that she would enjoy eating another cupcake. Which of the following statements is consistent with Kelly's decision - ANS-Kelly's total utility has increased but it is unclear what has happened to her marginal utility In economics, people make decisions regarding consumption based on comparing - ANS-additional units of satisfaction with additional costs A consumer has spent all of his income on pizza and movies. The price of a piece of pizza is $1 and the price of a movie is $6. The marginal utility of the last piece of pizza MICROECONOMICS MICROECONOMICS is 5 and the marginal utility of the last movie is 24. The consumer has - ANS-not maximized utility. He should cut back on movies and buy more pizza A higher price for a good implies that - ANS-the sacrifice of utility of another good has increased Pure economic rent is - ANS-a payment to a resource owner over and above what is necessary to keep the resource in its current use. A portion of a worker's earnings is rent if - ANS-the worker would accept a small wage cut without quitting or working for someone else It is likely that the owners have little to do with the day-to-day management of a firm in the case of - ANS-corporations only Accounting profits are found by total revenues minus - ANS-explicit costs. In a partnership of two people - ANS-each person has unlimited liability A normal rate of return on investment is equal to - ANS-the opportunity cost of capital plus any other implicit costs If the present value of $110 to be received one year from now is $100, what will $100 be worth two years from now? - ANS-$121 Corporations are able to raise large amounts of financial capital because - ANS-of limited liability and the treatment of a corporation as an individual entity. Efficient markets theory suggests that purchasing the published reports of financial analysts - ANS-is not likely to increase financial returns The best way to think of the short run and the long run is as - ANS-specific periods of time, although the time periods may differ across industries. The physical output that is due to the addition of one more unit of a variable factor of production is - ANS-marginal product. As long as marginal product of labor exceeds the average product of labor, then average product of labor - ANS-must rise When a company produces 5,000 units, total costs equal $150,000 and total variable costs equal $75,000. At this level of output, what is that company average fixed cost - ANS-$15 If average variable costs are increasing while average total costs are decreasing, then - ANS-marginal cost must lie between average variable and average total costs MICROECONOMICS MICROECONOMICS The marginal cost curve always intersects the average total cost curve at the point at which the average total cost curve - ANS-is at its minimum MC = AVC and MC = ATC at points at which - ANS-the AVC and ATC curves are at their respective minimums Which of the following statements is TRUE - ANS-A firm can experience diminishing marginal product and economies of scale at the same time Which of the following is NOT a characteristic of a perfectly competitive market - ANS-It is difficult for a firm to enter or leave the market The firm in a perfectly competitive industry is a - ANS-price taker. Which of the following statements about the perfect competitor is INCORRECT? - ANS The products made by a perfectly competitive firm have no close substitutes The perfectly competitive firm's demand curve has - ANS-a slope of 0 The total revenue of a perfectly competitive firm is calculated by - ANS-multiplying price by quantity The perfectly competitive firm maximizes profits when - ANS-it produces and sells the quantity at which marginal revenue and marginal cost are equal In the short run, which of the following is FALSE about the shutdown point? - ANS-Total revenue is equal to total fixed cost A firm is currently producing an output at which price equals the minimum point on the average variable cost curve. If wage rates increase, the firm will - ANS-shut down since it would no longer be covering its variable costs. In a perfectly competitive market in which all firms are maximizing their economic profits, the demand and supply curves intersect at a price of $8. From this we know that each - ANS-firm's marginal cost of producing the good is $8 Suppose a perfectly competitive industry is in long-run equilibrium. If a decrease in demand leads to a lower long-run price, we know that - ANS-this is an increasing-cost industry. Which of the following statements is FALSE - ANS-Typically there are numerous very close substitutes for the product of a monopolist Some electrical utilities are monopolies because of - ANS-government restrictions that prevent new firms from entering the market MICROECONOMICS MICROECONOMICS Which of the following is a characteristic of a monopoly firm - ANS-barriers to entry Which of the following is NOT true about the demand curve faced by a monopolist? - ANS-The demand curve is perfectly elastic A monopolist - ANS-is constrained in its pricing decisions by the demand curve it faces. The monopolist determines the price and quantity combination that maximizes short-run profits by - ANS-finding the quantity at which marginal cost and marginal revenue are equal and then using the demand curve to find price. A monopolist is producing at an output level at which MR = $6 and MC = $9. It could increase profits - ANS-by reducing output and by increasing price Assume that a monopoly is producing at a profit-maximizing output level. If the firm's total fixed costs decrease, the firm - ANS-should continue to produce at the same level. A monopolist engages in price discrimination - ANS-by charging a lower price to consumers whose demand is more elastic Monopolies are inefficient because - ANS-they charge a price above marginal cost Which of the following describes monopolistic competition - ANS-Advertising plays a key role In a monopolistically competitive market, a firm should advertise to the point at which - ANS-the additional revenue generated by one more dollar of advertising just equals the extra dollar cost of advertising In the short run, the monopolistic competitor is just like the perfect competitor in that - ANS-either type of firm can earn economic profits, experience economic losses, or break even in the short run. In the long run, monopolistic competitive firms are considered to be operating inefficiently because their - ANS-average total costs are not at a minimum If a monopolistically competitive firm selling an information product engages in marginal cost pricing, it will - ANS-fail to earn suffic