Saint Leo ECO-202 Module 8 Final Exam Spring 2015 Principles of Microeconomics

1. Gasoline prices in the United States decreased significantly between 2008 and 2009. A decrease in the price of gasoline, holding other things constant, will cause which of the following to occur? (Points : 1)

Increase the demand for gasoline.

Decrease the demand for gasoline.

Increase the quantity of gasoline demanded.

Decrease the quantity of gasoline demanded.

Question 2.2. There will be an increase in supply when __________. (Points : 1)

a consumer's income increases

there is an improvement in technology

the demand curve shifts

the market price rises from $3 to $4

Question 3.3. Refer to the figure below. The equilibrium price and quantity are __________.

image (Points : 1)

$2 and 12 units

$6 and 9 units

$8 and 6 units

$10 and 1 unit

Question 4.4. Suppose Brad Pitt and Angelina Jolie wear matching platinum jewelry in their new movie. After the movie is released, suppose that consumers increase their demand for the jewelry and at the same time manufacturers increase the supply of the jewelry. As a result, __________. (Points : 1)

the equilibrium quantity will increase, and there is an indeterminate change in the equilibrium price

the equilibrium quantity and price are both indeterminate

the equilibrium quantity will decrease, and the equilibrium price will increase

the equilibrium price and quantity will both decrease

Question 5.5. Other things being equal, a higher price induces __________. (Points : 1)

buyers to reduce the amount they want to buy and sellers to increase the amount they are willing to sell

buyers to increase the amount they want to buy and sellers to reduce the amount they are willing to sell

buyers to reduce the amount they want to buy and sellers to reduce the amount they are willing to sell

buyers to increase the amount they want to buy and sellers to increase the amount they are willing to sell

Question 6.6. Price ceilings set below the equilibrium price cause __________. (Points : 1)

shortages

surpluses

new market equilibriums

a greater number of exchanges

Question 7.7. When an external cost exists in the production of a good, firms tend to __________. (Points : 1)

under-produce the good since society pays these costs

over-produce the good

keep production constant throughout the year

under-allocate resources to the production of the good

Question 8.8. The distinguishing characteristic of private goods is that __________. (Points : 1)

the principle of rival consumption does not apply to them

their use is exclusive to the people who purchase them

they can be sold but not rented

they can be sold or rented, but they cannot be borrowed

Question 9.9. The free-rider problem is encountered when __________. (Points : 1)

someone benefits from the consumption of a public good without paying his or her full share

all individuals who consume a public good pay for it

all goods consumed and produced are private goods

all individuals are willing to pay for what they consume

Question 10.10. Suppose that the demand for pizza is inelastic. If a pizzeria decided to lower the price of pizza, total revenue would __________. (Points : 1)

increase

decrease

stay the same

be maximized

Question 11.11. When two goods are complements, __________. (Points : 1)

the demands for both goods will be elastic

cross price elasticity of demand will be 0

cross price elasticity of demand will be negative

cross price elasticity of demand will be positive

Question 12.12. Suppose that the income elasticity of demand for peanut butter is 0.75. Which of the following is true? (Points : 1)

Peanut butter is a normal good because income elasticity is positive.

Peanut butter is an inferior good because income elasticity is positive.

Peanut butter is a normal good because income elasticity is less than 1.

Peanut butter is an inferior good because income elasticity is less than 1.

Question 13.13. On a hot summer day, a construction worker enters a McDonald's fast-food restaurant. He orders the first Big Mac. He consumes it within 3 minutes. He then orders a second Big Mac and consumes it in 10 minutes. He eats only half of the third one in 18 minutes and throws away the rest. The store manager offers him the fourth for free. The construction worker says: "No thanks." For the construction worker described above, we can say that __________. (Points : 1)

diminishing marginal utility set in only after he had consumed the second Big Mac

diminishing marginal utility began as soon as he had eaten the first Big Mac

diminishing marginal utility did not occur, he simply wanted to quit eating

the law of diminishing marginal utility only applies to durable goods

Question 14.14. Despite the fact that water is necessary to sustain life, it is less expensive than soft drinks. Economic theory suggests that this is so because __________. (Points : 1)

there is a conspiracy among soft drinks producers to hold prices artificially high

although the total utility of water consumption is high, its marginal utility per dollar spent is low when compared to soft drinks

consumers are irrational

sellers of water hold the price of water artificially low because of its importance

Question 15.15. The substitution effect shows that __________. (Points : 1)

if the price of a good increases, consumers buy more of that good and less of all others

if the price of a good falls relative to all other goods, consumers buy less of that good and more of all others

if the price of a good falls, consumers buy less of all goods

if the price of a good rises, consumers buy less of that good and more of others

Question 16.16. The time period during which a firm's capital is fixed but its labor is variable is called __________. (Points : 1)

the planning horizon

the short run

the long run

the very long run

Question 17.17. If we add successive laborers to work a given amount of land on a wheat farm, eventually __________. (Points : 1)

average total cost will fall to zero

the increases in wheat harvested will rise at a constant rate

the increases in wheat harvested will get smaller and smaller

the increases in wheat harvested will get larger and larger

Question 18.18. A decrease in long-run average costs resulting from increases in output is __________. (Points : 1)

attributed to economies of scale

attributed to diseconomies of scale

attributed to constant returns to scale

attributed to the law of diminishing marginal product

Question 19.19. Perfect competition is characterized by __________. (Points : 1)

many buyers and sellers

a small number of firms

differentiated products of firms in the industry

high barriers to entry

Question 20.20. A firm seeking to maximize economic profits should produce at the output at which __________. (Points : 1)

total revenue equals total cost

marginal revenue equals marginal cost

average revenue equals average cost

marginal revenue equals average revenue

Question 21.21. In the long run, the price for a perfectly competitive firm __________. (Points : 1)

will be determined by the firm's supply and demand curves

will allow for positive economic profits

will equal marginal cost where marginal cost is at a minimum

will equal the minimum average total cost

Question 22.22. For a monopolist, the reason that marginal revenue is less than price is __________. (Points : 1)

because of the perfectly elastic demand curve that the monopolist faces

because the monopolist must lower the price of the good in order to sell an additional unit

because of the U-shaped average revenue curve

because of the lack of competition in the market

Question 23.23. Refer to the figure below. The profit maximizing price-output combination for the monopolist is a price of __________.

image (Points : 1)

50 cents and an output of 40,000 newspapers per day

30 cents and an output of 30,000 newspapers per day

60 cents and an output of 30,000 newspapers per day

45 cents and an output of 45,000 newspapers per day

Question 24.24. A monopolist engages in price discrimination __________. (Points : 1)

by charging a higher price to consumers whose demand is more elastic

by charging a higher price when marginal cost is lower

by charging a lower price to consumers whose demand is more elastic

by charging the same price to all consumers

Question 25.25. Compared to perfect competition, a monopolistically competitive market will produce ________ output and charge a ________ price. (Points : 1)

more; higher

more; lower

less; higher

less; lower

Question 26.26. In the long run, monopolistically competitive firms will not earn economic profits because __________. (Points : 1)

average total cost will shift up to meet the demand curve

input prices will be bid up

production will not be at minimum average cost

new firms will enter the industry

Question 27.27. The goal of advertising is to __________. (Points : 1)

increase the price elasticity of demand for the firm's product

reduce the price elasticity of demand for the firm's product

increase the standardization of the industry

encourage firms to enter into the industry

Question 28.28. Which of the following is NOT a necessary condition for oligopoly? (Points : 1)

Barriers to entry

Strategic dependence of firms

Differentiated products

Either a small number of firms or market dominance by a small number of firms

Question 29.29. Refer to the payoff matrix below for the profits (in $ millions) of two firms (A and B) making a decision to advertise or not. Which of the following is the outcome of the dominant strategy without cooperation?

29C (Points : 1)

Both firm A and firm B choose not to advertise.

Both firm A and firm B choose to advertise.

Firm A chooses to advertise while firm B chooses not to advertise.

Firm A chooses not to advertise while firm B chooses to advertise.

Question 30.30. Cartel agreements are more likely to break down when __________. (Points : 1)

there are few variations in market demand

new firms enter the market

participating firms earn huge profits

none of the above

Question 31.31. When MFC = MRP, a firm in a competitive market will __________. (Points : 1)

stop hiring

hire more workers

earn additional profits

layoff workers

Question 32.32. When the demand curve for an input is a derived demand this means that __________. (Points : 1)

the demand curve is derived from the demand for the final product being produced

the demand curve depends upon the MFC

the law of diminishing marginal product does not hold

the demand curve slopes upward

Question 33.33. In a perfectly competitive labor market, the wage rate paid by the individual firm is __________. (Points : 1)

the equilibrium market wage rate

dependent on the demand for the product

below the equilibrium market wage rate

a function of the tax system