Microeconomics Final Exam In-class activity 100% correct questions and answers

Robert Thomas Malthus The phrase the "dismal science" is attributed to: True Scarcity is the idea of having less and how to deal with having less. North Korea Which of the following is an example of a command economy? True Microeconomics is the area of economics that focuses on decisions made by individuals and businesses and covers such topics as profits, costs, revenues, and the four basic market structures False Normative economic analysis is the branch of economics that describes how the economy works and is backed by factual data and research False Price is the only variable that can cause the demand curve to shift. False Two goods are substitutes if a rise in the price of one good leads to a decrease in the demand for the other good. Changes in technology Which of the following is not a factor that can shift the demand curve? False Assume Great Value chicken noodle soup is an inferior good. If your income increases, then your demand for Great Value chicken noodle soup will increase Quantity demanded ___________refers to the actual amount of a good or services consumers are willing and able to buy at a specific price. True The law of supply implies that the supply curve will be upward sloping False The individual supply curve illustrates the relationship between quantity supplied and price for the market as a whole False Shortages occur when the price is above its equilibrium level. increase When there is an _________ in the supply curve, the entire curve shifts to the right and you move away from zero. changes in the number of consumers in the market Which of the following factors would not shift the supply curve? True If the demand curve increases while the supply curve is held constant, both price and quantity will increase. four There are ______ possible real-world cases worth analyzing regarding changes in either demand or supply and how those changes impact equilibrium price and quantity. increases Whenever there is an increase in the demand curve and there is a decrease in the supply curve, the equilibrium price_________ but the equilibrium quantity is indeterminant since it depends on the size of the shift. False If the demand curve decreases but the supply curve increases, price decreases but quantity will remain the same. - False False If the supply curve decreases while the demand curve is held constant, price will decrease and quantity will decrease. True If a 20% increase in the price of the Ford Focus generates a 40% decrease in the quantity of Ford Focus demanded, then the price elasticity of demand (P.E.D.) would be equal to 2. True The formula for the midpoint method is equal to (Q2−Q1)/((Q1+Q2)/2) / (P2−P1)/((P1+P2)/2). an increase in total revenue If demand is price elastic, a decrease in price causes perfectly inelastic The price elasticity of demand for a vertical demand curve is: greater than they are in the short run because consumers have time to adjust In the long run, price elasticities of demand are usually __________. Create a large increase in the quantity of street corn demanded The demand of street corn is elastic. A small decrease in the price of street corn will False True or False: If the elasticity of supply is 0, then supply is perfectly elastic horizontal; vertical If demand is perfectly elastic, then the demand curve is __________. If demand is perfectly inelastic, then the demand curve is__________ False True or False: If increasing the price leads to an increase in revenue, then the demand is elastic True The income effect occurs when a consumer substitutes a good that has become relatively cheaper for a good that has become relatively expensive False True or False: If the elasticity of supply is 0, then supply is perfectly elastic -13.33% The cross-price elasticity between eggs and hash browns is -1.5. If the quantity of eggs increased by 20%, how much did the price of hash browns change? 1.2 As a person's income increases by 25% they demand 30% more steak. What is the income elasticity of demand? 50% Use the graph. What percentage of the tax was paid by the consumer True True or False: A negative cross-price elasticity of demand tells us the two goods are complements. True True or False: The government implements a new tax on TVs. If the price elasticity of supply is larger than the price elasticity of demand, then the consumers would pay more in tax than the suppliers. quantity supplied = quantity demanded Society is best off when: As a person consumes more of a good, the utility from consuming each additional unit decreases The law of diminishing marginal utility states: 25 pairs of socks; 100 pairs of underwear Jacob has 100 dollars and wants to buy socks and/or underwear. If socks cost 4 dollars per pair and underwear costs 1 dollar per pair, what is the maximum amount of socks Jacob could buy? What is the maximum amount of underwear Jacob could buy? consumer surplus will increase If the price of a good or service decreases, then: False Consumer surplus in the market (or producer surplus) in the market, can be calculated using the formula for the area of a rectangle. True Consumer surplus is represented by the area below the demand curve and above the price. $2 If a consumer is willing to pay $15.00 for a new vinyl record and the price is $13.00, then the individual consumer surplus equals: True Total consumer surplus in the market is found by adding all the individual consumer surpluses in the market of all the buyers of a good or service. 2.4 Wages decrease by 11%. As a result, the quantity of labor hours decreased by 26%. What is the wage elasticity of labor supply? implicit cost The amount of money that could have been made by renting a piece of land to be used for building an office building instead of using the land for employee parking is an: $52,000 A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his explicit costs? 10 million Suppose a firm has total revenue of $200 million, explicit costs of $190 million, and implicit costs of $20 million. This firm's accounting profit is in which a firm uses at least one fixed input The short run is a period of time: 1,000 bushels per acre per year A farm is able to produce 5,000 bushels of peaches per season on 100 acres. Assume it adds one more acre and is able to produce 6,000 bushels per season. The marginal product of the additional acre of land for this farm is: third Exhibit 1 Workers and Output Data Laborers Total Product 0 0 1 8 2 20 3 25 4 28 5 29 In Exhibit 1, diminishing returns set in when the _______ worker is hired. total fixed and total variable cost curves The total cost curve is the sum of the False Fixed costs vary with the level of production. decrease The law of diminishing marginal product states that as you add more and more variable inputs to a fixed set of inputs, the marginal product will eventually: True Consumers seek to maximize their utility subject to their budget all of these Some costs associated with taxes include: Unaffordable Choices above the budget line are: True The formula for marginal utility is (∆TU/∆Q). False Accounting profit is often less than economic profit for a firm profits Firms seek to maximize: hiring additional workers adds less and less additional output If a firm's use of labor obeys the law of diminishing returns, then: total fixed and total variable costs curves The total cost curve is the sum of the: False Average fixed cost rises as more output is produced. True The U-shaped average total cost curve falls at low levels of output, then rises at higher levels of output. True Marginal cost represents the cost of the last unit of output produced fixed costs; do not change A firm's ___________ consist of expenditures that must be made before production starts that typically, and _______________ regardless of the level of production average cost In order to determine ____________, the firm's total costs must be divided by the quantity of its output. economies of scale The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls. Variable costs If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero? True The marginal cost curve rises due to diminishing returns to inputs when a variable input is increased as quantities of other inputs remain fixed. perfectly elastic Because a competitive firm is a price taker, it faces a demand curve that is $10 If a perfectly competitive firm sells 50 units of output at a market price of $10 per unit, its marginal revenue is increase output A firm is currently operating where the MC of the last unit produced = $64, and the MR of this unit = $70. What would you advise this firm to do? economic profits become zero Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see False A perfectly competitive firm that is making zero economic profits will go out of business (shut down). True In the short run, perfectly competitive firms can earn profits, losses or break-even. False Sunk costs are considered important costs when making decisions. lowest when a single firm generates the entire output of the industry. When a natural monopoly exists in a given industry, the per-unit costs of production will be: output will be too small and its price too high. How will the price and output policy of an unregulated monopolist compare with ideal market efficiency (or welfare)? always lies beneath The marginal revenue curve for a monopolist _________ the market demand curve. An oligopoly _________________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry. monopolistic competition Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call _______________. True A monopolist's perfect price discrimination results in a great quantity of output than a traditional monopoly (without price discrimination). True A firm with market power will increase the price on customers who have inelastic demand. True A two-part tariff is an example of perfect price discrimination. True Collusion occurs when firms cooperate with each other in order to raise each other's profits through an informal agreement True Oligopolists are considered to be interdependent on one another True Cheating is a problem for cartels. True When graphing a cartel situation, the supply curve for a cartel is completely vertical. False When a monopoly price discriminates, it's profits decrease. False Price competition occurs when firms agree to divide the market, restrict their individual output, and price above marginal cost to increase profits. duopoly The dominance of Walgreens and CVS in the national pharmacy market is an example of a: tit for tat The type of strategy where each player in a game plays cooperatively at first, then does whatever the other player did in the previous period as a form of retaliation is: dominant strategy An action that is considered a players' best action (in game theory) regardless of the action taken by the other player in the game is: False In a prisoners' dilemma game, there is no incentive for each player to cheat. True Game theory is the study of oligopoly firm behavior in situations of interdependence. monopolistic competition Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call _______________ short; long A monopolistically competitive firm may earn positive economic profits in the _____ run but not in the _____ run. monopolistic competition firm Who would you recommend spending more in advertising? False Monopolistically competitive firms produce at the minimum of the ATC curve in the long run. Price makers Monopolistically competitive firms are: False The key to whether a firm in monopolistic competition in the short run will be profitable lies in the relationship between the marginal cost curve and the demand curve. False In the market for labor, households demand labor and firms supply labor. True According to the income effect, an individual chooses to work fewer hours as a result of an increase in the wage rate monopsonist A single firm in the labor market is a True A change in wealth can shift the labor supply curve True In a labor market that is considered perfectly competitive, the equilibrium wage equals the value of the marginal product of the last unit of labor that is hired True If an individual decides to work more hours as a result of an increase in the wage rate, the substitution effect dominates True Wage disparities occur in our economy and in a few instances, women out-earn their male counterparts False A compensating wage differential refers to a wage difference that is paid for certain jobs that are unusually hard to find. False An efficiency wage refers to a wage rate that is paid above the equilibrium wage for jobs that are dangerous or unpleasant True The wage rate that you receive should be equal to the value of marginal productivity of labor added. True There is an indirect relationship between educational attainment and unemployment rates. True Some, but not all, of the observed inequality in wages can be attributed to the marginal productivity theory of income distribution. lowest when a single firm generates the entire output of the industry When a natural monopoly exists in a given industry, the per-unit costs of production will be An oligopoly _________________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry. True Trust is another word used to describe a monopoly True Firms engage in price discrimination to increase profits. A vertical merger A merger of two companies in different stages of the supply chain is Airlines A good example of an oligopoly is