BMAL590 Microeconomics
Exam Questions and
Answers All Correct
A legal entity, in its own right, that can be closely held (with few shareholders) or widely
held (with hundreds of thousands of shareholders is called ____________ - Answer-a
corporation
All other inputs remaining the same, the additional output that may result from an
additional unit of labor is _________ - Answer-marginal product
Average total costs is equal to which of the following? - Answer-The sum of average
variable costs and average fixed costs
Profit maximization occurs when - Answer-a firm expands output until marginal revenue
is equal to marginal cost
Dana, who is a trained yoga instructor, spends 4 hours on Monday baking and packing
10 boxes of cookies. She sells the cookies for $10 a box. Given that she can also teach
yoga for $80 an hour, what is her opportunity cost of baking cookies? - Answer-To bake
cookies, Dana gives up teaching yoga. Her earnings from yoga are 4 hours x $80/hour
= $320.
Rational people - Answer-Systematically and purposefully do the best they can to
achieve their objectives.
Often make decisions by comparing the marginal benefit (MB) and the marginal cost
(MC) of a proposed action.
Rational decision makers take action if and only if
MB > MC.
- When a student considers whether to go to college for an additional year, he
compares the fees and foregone wages to the extra income he could earn with the extra
year of education.
- When a manager considers whether to increase output, she compares the cost of the
needed labor and materials to the extra revenue.
,incentive - Answer-something that induces a person to act, such as the prospect of a
punishment or a reward.
Because rational people make decisions by comparing costs and benefits, they respond
to incentives.
Examples:
- When fuel prices rise, consumers buy more hybrid cars and fewer less fuel efficient
SUVs or trucks.
- When cigarette taxes increase, teen smoking falls.
Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10
empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby
passenger is willing to pay $300, the airline should - Answer-sell the ticket because the
marginal benefit exceeds the marginal cost.
The rational thinker makes decisions where MB > MC. In this case, the MB = $300 and
the MC = $200 so the airline should sell the ticket.
People respond to incentives ________ - Answer-by calculating their individual costs
and benefits and determining which is greater
Because the resources immediately available for use are limited - Answer-people must
make choices about resource use
An incentive ________ - Answer-could be either a reward or a punishment
market - Answer-a system that brings buyers and sellers of a particular product
together.
competitive market - Answer-one with many buyers and sellers, each has a negligible
effect on price of the product.
in a perfectly competitive market: - Answer-All goods are homogeneous (exactly the
same).
Buyers and sellers so numerous that no one can affect market price so each participant
is called a price taker.
In the real world, there are relatively few perfectly competitive markets. Most goods
come in many different varieties and there are many markets in which the number of
firms is small enough that some of them have the ability to affect the market price.
Quantity Demanded (Qd) - Answer-of any good is the amount of the good that buyers
are willing and able to purchase at a given price.
Quantity demanded rises as price falls, other things constant. 𝑃↓ 𝑤ℎ𝑖𝑙𝑒 𝑄𝐷↑
, Quantity demanded falls as price rises, other things constant. 𝑃↑ 𝑤ℎ𝑖𝑙𝑒 𝑄𝐷↓
Law of demand - Answer-the claim that there is a negative or inverse relationship
between quantity demanded and price (P), other things equal.
Demand comes from the behavior of buyers. It is an indication of how much product or
service buyers want.
Demand schedule: - Answer-a table that shows the relationship between the price of a
good and the quantity demanded.
In the same way that Jane's preferences obey the law of demand, all demand curves
must obey the law of demand.
The quantity demanded in the market is the sum of the quantities demanded by all
buyers at each price.
At each price, the quantity demanded in the market is the sum of the quantity
demanded by each individual buyer in the market. This holds whether there are two
buyers or two million buyers.
Demand Curve Shifters - Answer-the demand curve shows how price affects quantity
demanded, other things being equal.
These "other things" are non-price determinants of demand (i.e., things that determine
buyers' demand for a product, other than the products's price).
Changes in demand shifters (for instance: consumer tastes and preferences,
economics, culture, society, technology, natural, and substitute products) will shift the
Demand curve to the left or to the right depending upon the change.
Demand Curve Shifter 1: Number of Buyers - Answer-increase ( ↑ ) in the number of
buyers
Increases quantity demanded at each price, shifts D curve to the right.
Decrease ( ↓ ) in the number of buyers
Decreases quantity demanded at each price, shifts D curve to the left.
Demand Curve Shifter 2: Income - Answer-- Demand for a normal good is directly or
positively related to income.
An increase in income causes an increase in quantity demanded at each price, shifts D
curve to the right. The opposite case applies as well.
Income ↑ causes Demand for a normal good ↑
Income ↓ causes Demand for a normal good ↓
Exam Questions and
Answers All Correct
A legal entity, in its own right, that can be closely held (with few shareholders) or widely
held (with hundreds of thousands of shareholders is called ____________ - Answer-a
corporation
All other inputs remaining the same, the additional output that may result from an
additional unit of labor is _________ - Answer-marginal product
Average total costs is equal to which of the following? - Answer-The sum of average
variable costs and average fixed costs
Profit maximization occurs when - Answer-a firm expands output until marginal revenue
is equal to marginal cost
Dana, who is a trained yoga instructor, spends 4 hours on Monday baking and packing
10 boxes of cookies. She sells the cookies for $10 a box. Given that she can also teach
yoga for $80 an hour, what is her opportunity cost of baking cookies? - Answer-To bake
cookies, Dana gives up teaching yoga. Her earnings from yoga are 4 hours x $80/hour
= $320.
Rational people - Answer-Systematically and purposefully do the best they can to
achieve their objectives.
Often make decisions by comparing the marginal benefit (MB) and the marginal cost
(MC) of a proposed action.
Rational decision makers take action if and only if
MB > MC.
- When a student considers whether to go to college for an additional year, he
compares the fees and foregone wages to the extra income he could earn with the extra
year of education.
- When a manager considers whether to increase output, she compares the cost of the
needed labor and materials to the extra revenue.
,incentive - Answer-something that induces a person to act, such as the prospect of a
punishment or a reward.
Because rational people make decisions by comparing costs and benefits, they respond
to incentives.
Examples:
- When fuel prices rise, consumers buy more hybrid cars and fewer less fuel efficient
SUVs or trucks.
- When cigarette taxes increase, teen smoking falls.
Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10
empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby
passenger is willing to pay $300, the airline should - Answer-sell the ticket because the
marginal benefit exceeds the marginal cost.
The rational thinker makes decisions where MB > MC. In this case, the MB = $300 and
the MC = $200 so the airline should sell the ticket.
People respond to incentives ________ - Answer-by calculating their individual costs
and benefits and determining which is greater
Because the resources immediately available for use are limited - Answer-people must
make choices about resource use
An incentive ________ - Answer-could be either a reward or a punishment
market - Answer-a system that brings buyers and sellers of a particular product
together.
competitive market - Answer-one with many buyers and sellers, each has a negligible
effect on price of the product.
in a perfectly competitive market: - Answer-All goods are homogeneous (exactly the
same).
Buyers and sellers so numerous that no one can affect market price so each participant
is called a price taker.
In the real world, there are relatively few perfectly competitive markets. Most goods
come in many different varieties and there are many markets in which the number of
firms is small enough that some of them have the ability to affect the market price.
Quantity Demanded (Qd) - Answer-of any good is the amount of the good that buyers
are willing and able to purchase at a given price.
Quantity demanded rises as price falls, other things constant. 𝑃↓ 𝑤ℎ𝑖𝑙𝑒 𝑄𝐷↑
, Quantity demanded falls as price rises, other things constant. 𝑃↑ 𝑤ℎ𝑖𝑙𝑒 𝑄𝐷↓
Law of demand - Answer-the claim that there is a negative or inverse relationship
between quantity demanded and price (P), other things equal.
Demand comes from the behavior of buyers. It is an indication of how much product or
service buyers want.
Demand schedule: - Answer-a table that shows the relationship between the price of a
good and the quantity demanded.
In the same way that Jane's preferences obey the law of demand, all demand curves
must obey the law of demand.
The quantity demanded in the market is the sum of the quantities demanded by all
buyers at each price.
At each price, the quantity demanded in the market is the sum of the quantity
demanded by each individual buyer in the market. This holds whether there are two
buyers or two million buyers.
Demand Curve Shifters - Answer-the demand curve shows how price affects quantity
demanded, other things being equal.
These "other things" are non-price determinants of demand (i.e., things that determine
buyers' demand for a product, other than the products's price).
Changes in demand shifters (for instance: consumer tastes and preferences,
economics, culture, society, technology, natural, and substitute products) will shift the
Demand curve to the left or to the right depending upon the change.
Demand Curve Shifter 1: Number of Buyers - Answer-increase ( ↑ ) in the number of
buyers
Increases quantity demanded at each price, shifts D curve to the right.
Decrease ( ↓ ) in the number of buyers
Decreases quantity demanded at each price, shifts D curve to the left.
Demand Curve Shifter 2: Income - Answer-- Demand for a normal good is directly or
positively related to income.
An increase in income causes an increase in quantity demanded at each price, shifts D
curve to the right. The opposite case applies as well.
Income ↑ causes Demand for a normal good ↑
Income ↓ causes Demand for a normal good ↓
