MICROECONOMICS MIDTREM TEST BANK 2025

MICROECONOMICS MIDTREM TEST BANK 2025 Which one of the following does NOT constitute an assumption made in the analysis of peoples' economic behavior? - -People do not make tradeoffs in what they decide to purchase and consume When a person chooses to buy X, it is based on the premise that the value derived from X must be _____________ - -more than or equal to the opportunity cost Which one of the following concepts relates directly to the value of a worker's special knowledge and skills? - -Human Capital Which one of the following is NOT among the central or key dimensions (question) in economic choice? - -Where to produce the goods and services A situation where there is either inefficient or inequitable distribution of goods / services in a free market is termed _ - -Marshall's tradeoff The wider acceptance of a more competitive market-based economy by countries is termed ___________. - -Globalization Which of the following is NOT one of the benefits of competition? - -It ensures that taxes collected by the government are put to good use The argument that free actions of private individuals and firms would work together for the greater good of society is best captured in which idea/concept developed by Adam Smith? - -Invisible hand Which one of the following constitutes the most direct benefit of increasing division of labor? - -Increase in labor productivity Which of the following themes would be the central concern in the subfield of "game theory" in economics? - -Analysis of decision making under conditions of interdependency between firms. Which of the following may cause a movement along the demand curve for product X? - -Change in the price of x Which of the following can cause a shift of the supply curve for product X: (I) change in price of product X; (II) change in input prices of producing X; (III) change in technology? - -II and III MICROECONOMICS MICROECONOMICS Good X and good Y are "complements". When the price of X is increased, there is a _________. - -Shift in demand curve for Y and movement along demand curve for X The market for product Y is in a state of disequilibrium. To bring the market back to equilibrium, what is observed is that the price of Y is going up. Which of the following will lead to this increase in the price - -The demand for Y exceeds the supply and there is a shortage of Y Currently the market for product X is witnessing a "surplus". What is likely to happen in this situation of market disequilibrium? - -Price will go down; demand will go up and supply will come down Currently, the market for product X is witnessing a "shortage". What is likely to happen in this situation of market disequilibrium? - -Price will go up; demand will come down and supply will go up Which one the following is a true statement? - -A price ceiling is usually applied to essential products and has the effect of lowering the price of the products What is a "price ceiling" and at what level should the price ceiling be to effective? - -A price ceiling is a control on the maximum price that can be charged for a product; it has to be set at a level below the equilibrium price to be effective. What is a "price floor" and at what level should the price floor be to be effective? - -A price floor is a control on the minimum price that can be charged for a product; it has to be set at a level above the equilibrium price to be effective. The Massachusetts minimum wage policy currently requires firms to pay workers at least or more than $13.50 per hr. This is an example of which type of price control? - Price floor What are the sources of demand and supply for labor and what is the price of labor? - Demand = firms; Supply = individuals; price = wages When the price of labor is deliberately increased through the implementation of a minimum wage policy, what is the most likely result? - -The supply of labor will increase and the demand will decrease resulting in a labor surplus When the minimum wage rate is set at $15 (up from equilibrium price of $10), this leads to a number of workers being fired from their jobs. Based on the data given in the diagram on the right, the number of fired workers is ______. - -100 - 50 = 50 workers When the minimum wage rate is set at $15 (up from equilibrium price of $10), the number of workers newly entering the labor market is ___. - -120 - 100 = 20 workers MICROECONOMICS MICROECONOMICS When the minimum wage rate is set at $15 (up from equilibrium price of $10), the total number of surplus workers resulting from this policy is _____. - -120 - 50 = 70 workers Consumer surplus is depicted by which area? - -W Producers surplus is depicted by which area? - -X The maximum price John is willing to pay for product X is $5. If the market price for the product is $6, what happen2s2 ? - -John will not buy the product and settle for the next best alternative The market equilibrium price of a product X is $10. Jenn buys the product but her consumer surplus is zero. Which one of the following depicts Jenn's purchase situation? - -The maximum price Jenn was willing to pay for X is exactly $10 At the minimum price a producer is willing to receive for a product, the level of profit is ____________. - -The same as the producers opportunity cost With reference to diagram (right) of the wheat market, after the imposition of the price floor (P'), the deadweight loss is indicated by _________. - -C+E With reference to diagram (right) of the wheat market, after the imposition of the price floor (P'), the consumer surplus is indicated by _________. - -A With reference to diagram (right) of the wheat market, after the imposition of the price floor (P'). The producer surplus is indicated by - -B+D Which one of the following scenarios would be true if the supply is "perfectly inelastic"? - -When the price increases by 20%, the supply remains unchanged The diagram on the right shows a demand curve that is ________. - -perfectly inelastic with an elasticity value of zero When the value of the price elasticity of DEMAND is ________, we can say that the demand is perfectly elastic. - -∞ For a particular product Y, it is found that the quantity demanded always remains the same regardless of any price changes. A price change (whether upwards to downwards) does not bring about any change in quantity demanded. What is the price elasticity of demand for product Y? - -It is perfectly inelastic with a value of zero What is the price elasticity of demand (Ed) for product X? - -It is a measure of how responsive the demand is for product X as a result of a change in the price of the product X MICROECONOMICS MICROECONOMICS When the price elasticity of demand for a particular product X shows "unitary elasticity", it means that when the price of X decreases by 10%, __________________________. - -The quantity demand for X will increase by 10% Which one of the following scenarios would be true if the supply is "relatively inelastic"? - -When the price increases by 20%, the supply increase by less than 20% In the shipping business, when shipowners have substantial spare capacity (capacity utilization is low), it is quite easy to expand supply in response to growing demand and rising prices. In this case, we say that the supply of ships is ____. - -relatively elastic When shipowners have very little spare capacity, the quantity supplied of ships becomes responsive only to a very limited extent to growing demand and rising prices. In this case, we say that the supply of ships is _______. - -relatively inelastic An example of an entity that is not driven by the profit maximization motive is the "NGO". What does "NGO" stand for? - -Non-governmental organization Which of the following types of firms/agencies are driven by the profit maximization motive? - -None of the above Most NGOs are - -Nonprofit agencies where members are mostly volunteers The relationship between a firm's inputs and outputs is termed the - -production function Which of the following is not an example of a firm's "inputs"? - -Investment Assume that a firm has three inputs in its production process, namely (I) workers; (II) factory space; (III) equipment and machinery. Which of these inputs are considered as variable inputs for the firm in the long run? - -II and III Which of the following constitutes an example of a "fixed cost"? - -Cost of licenses Which one of the following constitutes an example of "variable cost"? - -Transportation costs Which of the following is an example of a cost that varies with the level of output? - Wages When the production has not started (TP=Zero), the total cost (TC) would be _________. - -TC= Total fixed costs When a firm expands the output of its good from 100 units to 200 units, what happens to the firm's total fixed cost (TFC) and Total variable cost (TVC)? - -TFC remains the same; TVC increases MICROECONOMICS MICROECONOMICS Which of the statements below is/are true - (I) Profitability is based on both costs and revenues; (II) Efficiency is based on both costs and revenues; (III) Efficiency is based only on revenues; (IV) Profitability is based only on revenues? - -I only A firm is achieving productive efficiency when it is producing at the point where its ______________. - -Average total cost (ATC) is the lowest A firm that is economically rational will produce at the point where its - -Profit is the highest The idea of decreasing returns to scale relates to - -Average total cost increases whe