MICROECONOMICS FINAL (UCF) Exam Multiple Choices Prep Questions And Correct Answers.

Goods may be rival or non-rival in consumption. A good would be considered rival if: - correct answer one individual's consumption of the good results in less of it being available for others to consume Goods may be excludable or non-excludable in consumption. A good would be considered non-excludable if: - correct answer individuals who do not pay for the good can not be kept from enjoying its benefits The four classes of economic goods discussed at the beginning of the semester include: - correct answer public goods, private goods, common property goods (or common property resources), and club goods Two major highways that affect traffic flows in Orlando include Interstate 4 (I-4) and State Road 408. Motorists are not required to pay a toll to drive on Interstate 4, whereas they are required to pay a toll to drive on State Road 408. If at a given time of day State Road 408 is highly congested, then it could be considered to possess the properties of a: - correct answer private good If a market for a good (or service) is perfectly, or purely, competitive then: i. the good that is produced (or service that is provided) and traded is homogenous or standardized ii. there are large numbers of independently acting buyers and sellers iii. an individual buyer can affect the market price whereas an individual seller can not iv. an individual seller can affect the market price whereas an individual buyer can not - correct answer i and ii The law of demand states that: i. as the price of a good increases, quantity demanded will decrease, holding all other factors constant ii. as the price of a good decreases, quantity demanded will increase, holding all other factors constant iii. as the price of a good increases, demand will decrease iv. as the price of a good decreases, demand will increase v. as the price of a good increases, quantity demanded will decrease vi. as the price of a good decreases, quantity demanded will increase vii. as the price of a good increases, demand will decrease, holding all other factors constant viii. as the price of a good decreases, demand will increase, holding all other factors constant - correct answeri and ii From an individual's demand curve for a good or service, which of the following may be determined? i. the choke price ii. the total expenditures on the good at a given price iii. the quantity demanded at a given price iv. how quantity demanded changes if the price of the good changes - correct answer i, ii, iii, and iv A good's 'choke price' is the dollar amount at which none of the good will be purchased and below which units will be purchased. If an individual's demand function for a good is given by the linear equation Q = 10 - 0.25P, then the choke price is: - correct answer$40 Considering the demand side of a market for a good or service, the determinants of demand (DOD) refer to: i. factors other than price that affect the quantity of the good or service a consumer is willing and able to purchase ii. factors that affect a consumer's minimum willingness-to-pay for various quantities of the good or service iii. factors that affect a consumer's maximum willingness-to-pay for various quantities of the good or service - correct answeri and iii Which of the following will result in a decrease in the demand for a good? - correct answer a decrease in the price of a substitute good The income effect, substitution effect, and diminishing marginal utility are all explanations for: - correct answer none of the above are correct At all points along an individual's demand curve for a good: - correct answer all determinants of quantity demanded other than the price are held constant Considering the demand side of a market for a good, it is reasonable to expect that: i. an individual has identical demand curves for different goods ii. an individual has different demand curves for different goods iii. demand curves for a given good are identical between consumers iv. demand curves for a given good differ between consumers - correct answer ii and iv Suppose the market demand curve for a good is represented by the linear equation Q = 60 - 0.75P. If the market price were to increase from P = $20 to P = $40, then holding all other factors constant: - correct answer the quantity demanded would decrease by 15 units and total expenditures on the good would increase by $300 A perfectly competitive firms supply curve for a good identifies the: i. maximum quantity supplied at each price, holding all other factors constant ii. firms maximum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant iii. minimum quantity supplied at each price, holding all other factors constant iv. firms minimum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant - correct answer i and iv Considering the supply side of a market for a good, if a firms supply curve were vertical, then: - correct answer the law of supply fails to hold, and quantity supplied is completely insensitive to changes in price The determinants of supply are: i. factors other than price that will affect the quantity of a good or service a firm is willing and able to produce ii. factors that affect a producers minimum willingness-to-accept to produce various quantities of a good iii. factors that affect a producers maximum willingness-to-accept to produce various quantities of a good - correct answer i and ii The market supply curve for a good is derived by: i. horizontally summing the supply curves of the individual firms in the market ii. vertically summing the supply curves of the individual firms in the market iii. summing the quantity supplied by each firm at a given price and then repeating this over the range of prices - correct answer i and iii Considering the market for gasoline, which of the following would result in an increase in market supply? i. a decrease in the price of gasoline ii. an improvement in oil extraction and refining technologies iii. an increase in the wage rates paid to gasoline refinery workers iv. a decrease in the price of crude oil, a key input used to produce gasoline v. the imposition of a federal gasoline tax aimed a decreasing the emission of greenhouse gases - correct answer ii and iv If the level of technology used in the production of a good improves, and assuming the quality of the good does not change, then: i. more output may be obtained with a given amount of inputs compared to before the technological improvement ii. a given amount of output may be obtained with fewer inputs compared to before the technological improvement iii. the firm will increase its use of other inputs, such as the number of workers it employs iv. market demand for the good will increase - correct answer i and ii Suppose a market has two identical sellers. If each sellers supply function is given by P = 20 + Q, then the market supply function is: - correct answer P = 20 + 0.5Q From the market framework discussed in class and the readings, it may be concluded that in order for a good to be exchanged between a seller and a buyer, it must be that: - correct answer buyer maximum willingness-to-pay is greater than or equal to seller minimum willingness-to-accept If the market demand function is given by P = 80 - 0.3Q and the market supply is given by P = 20 + 0.1Q, then the equilibrium price and quantity are: - correct answer P = $35 and Q = 150 Of concern are the affects of sustained summer droughts on the domestic supply of wheat. Noting that wheat is a primary ingredient in the production of bread and that potatoes are a substitute for bread, if the supply of wheat declines then it is reasonable to expect: - correct answer the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to increase Suppose a perfectly competitive market is initially in equilibrium. If market demand decreases and market supply simultaneously increases, then equilibrium: - correct answer price will fall, but the equilibrium quantity may either rise, fall, or remain unchanged Considering the demand side of a market for a good, the consumer surplus derived by an individual: i. is the difference between the maximum amount the consumer is willing to pay on each unit and the minimum prices that producers are willing to accept ii. is the difference between the maximum amount the consumer is willing to pay on each unit and the price he/she actually pays iii. is the difference between the minimum amount the consumer is willing to pay on each unit and the price he/she actually pays iv. will decrease if price decreases - correct answer ii Suppose the market demand for a good is described by the equation P = 60 - 0.5Q. If a change in market supply results in price decreasing from P0 = $40 to P1 = $30, then the resulting change in consumer surplus is: - correct answer$500 In economics, an elasticity is: i. a measure of the sensitivity of a variable to a change in another variable ii. invariant (or insensitive) to the units in which variables are measured iii. equal to the ratio of the percentage change in the affected variable to the percentage change in the affecting variable iv. equal to the ratio of the percentage change in the affecting variable to the percentage change in the affected variable - correct answer i, ii, and iii The price elasticity of demand is defined as the: - correct answer percentage change in quantity demanded divided by the percentage change in price The price elasticity of demand may be preferred over the slope of the demand function for measuring consumer sensitivity to changes in the price of a good because the: i. price elasticity is sensitive to the units in which price and quantity demanded are measured ii. slope of the demand curve can only be used if the demand curve is linear iii. price elasticity provides a better means for making cross-product comparisons (e.g., between goods A and B) when the prices of the products differ - correct answer iii If the price of a good increases from $50 to $60 and as the quantity demanded subsequently decreases from 80 to 70 units, then over this price range: i. demand has decreased ii. demand is unit elastic iii. demand is inelastic iv. demand is elastic - correct answer iii If the market demand for a good is described by the function P = 60 - 2Q, then the total revenue function relating the total revenues (TR) to the quantity sold (Q) is: - correct answer TR = 60Q - 2Q2 If the demand for a good is inelastic at the market price, then: i. buyers are said to be relatively insensitive to changes in price ii. the price elasticity in absolute value is less than one iii. total revenue will decrease if price decreases iv. a percentage change in price will result in a smaller percentage change in quantity demanded - correct answer i, ii, iii, and iv Suppose consumer demand for a good is described by the function P = 100 - 2Q. It follows that as price is lowered from the choke price to zero, total expenditures on the good: - correct answer increase initially and then decrease The more broadly a good is defined (for example, gasoline in general versus a specific brand