105 MCQs on Principles of Economics with Answers | ECON 2005, Study notes of Microeconomics

Download 105 MCQs on Principles of Economics with Answers | ECON 2005 and more Study notes Microeconomics in PDF only on Docsity! MODEL QUESTIONS ECONOMICS 112 MIDTERM # 3 Nov. 16, 2001 Mr. Barth 1. Abby Normal maximizes utility by allocating time among leisure, market work, and nonmarket work so that the a. total utility of each is equal b. average utility of each is equal c. total utility per hour of each is equal d. marginal utility per hour of each is equal e. maximum amount of goods and services can be acquired 2. A person maximizes utility by allocating time among leisure, market work, and nonmarket work so that the a. expected total utility of each is equal b. expected average utility of each is equal c. expected total utility per hour of each is equal d. expected marginal utility per hour of each is equal e. maximum amount of goods and services can be acquired 3. A college dean has a __________ opportunity cost of __________ than a college student working in a minimum-wage job. a. lower; leisure b. lower; nonmarket work c. lower; market work d. higher; nonmarket work e. higher; market work 4. The income and substitution effects of a change in the wage rate a. always work in the same direction b. always work in opposite directions c. work in opposite directions only if the change is a decrease d. work in the same direction only if the change is an increase e. work in the same direction only if the change is a decrease 5. The income effect of a decrease in the wage rate causes the quantity of labor supplied to a. increase b. increase only if the individual desires more leisure time c. increase only if the substitution effect outweighs the income effect d. decrease e. decrease only if the substitution effect is weaker than the income effect 6. The substitution effect of a decrease in the wage rate causes the quantity of labor supplied to a. increase b. increase only if the individual desires more leisure time c. increase only if the substitution effect outweighs the income effect d. decrease e. decrease only if the individual lowers the value of leisure time 7. If Doc Stone's desire to consume more leisure as he becomes richer always equals his desire to work more as his wage increases, then his supply of labor curve will a. bend backward b. have a positive slope throughout c. have a negative slope throughout d. be U-shaped e. be vertical 8. If the substitution effect is always greater than the income effect, then an individual's labor supply curve will a. bend backward b. always have a positive slope c. always have a negative slope d. be vertical e. be horizontal 9. A person who wins a large sum of money in the state lottery is likely to a. increase the amount of market work offered at each wage rate b. not change the amount of work offered at each wage rate c. decrease the amount of work offered at each wage rate d. substitute market work for leisure time due to the substitution effect e. substitute market work for leisure time due to the income effect 10. Which of the following could explain an increase in demand for labor? a. additional training that increases the productivity of each unit of labor in this market b. an increase in the amount of risk associated with this job c. a decrease in the amount of risk associated with this job d. an improvement in the working conditions associated with this job e. a decline in the working conditions associated with this job 11. Which of the following could explain an increase in the equilibrium wage rate for a particular job? a. a decrease in the amount of training needed to perform this job b. an increase in the amount of risk associated with this job c. a decrease in the amount of risk associated with this job d. an improvement in the working conditions associated with this job e. increased migration of workers to this geographic location 23. The union participation rate in the United States is a. highest among government employees b. highest among private sector workers c. highest in the smokestack industries d. highest in the service sector e. higher than in Sweden 24. Which of the following explains the recent decline in union membership in the United States? a. smaller government safety nets b. slower technological change c. the change from a manufacturing to a service-based economy d. increasing market concentration e. none of the above 25. One significant reason for the declining membership in unions in the U.S. is a. more workers are entering the teaching field b. increasing employment in the industrial sector c. the structural shift of the economy toward services d. increasing cultural diversity in the workforce e. a decrease in the number of public sector employees 26. Which of the following occurs if firms use their market power to restrict output and raise price? a. resources are misallocated b. wealth is shifted from consumers to government c. wealth is shifted from producers to consumers d. P = MC e. P = minimum LRAC 27. In a natural monopoly, throughout the range of market demand, a. marginal cost exceeds average cost and therefore pulls average cost upward b. average cost exceeds marginal cost and therefore pulls marginal cost upward c. marginal cost is below average cost and therefore pulls average cost downward d. average cost is equal to marginal cost e. there are diseconomies of scale 28. Economies of scale throughout the range of market demand give natural monopolies a. downward-sloping long-run average cost curves b. upward-sloping long-run average total cost curves c. upward-sloping long-run average cost curves d. upward-sloping short-run average total cost curves e. horizontal long-run average cost curves 29. A natural monopoly, such as the local telephone company, is characterized by a. a lack of natural competitors b. low fixed costs and diseconomies of scale c. economies of scale d. a lack of government regulation e. constant costs of production 30. If a firm has a downward-sloping long-run average cost curve over the entire range of market demand, it is a a. local monopoly b. resource monopoly c. monopsony d. output monopoly e. natural monopoly 31. Watt Power and Light, an electric company, will suffer an economic loss a. even at its profit-maximizing output because marginal cost is always less than average cost b. even at its profit-maximizing output because average cost is always less than marginal cost c. if regulators insist that it produce where price equals marginal cost because marginal cost is less than average cost d. if regulators insist that it produce where price equals marginal cost because average cost is always less than marginal cost e. if regulators insist that it produce where price equals average cost because average cost is always less than marginal cost 32. If a regulator sets the price equal to the natural monopolist's marginal cost, a. the monopoly will experience a loss b. the monopoly will earn a profit c. the monopoly will earn zero profit d. consumers will be worse off than they would be if the firm's profit maximization activities were unregulated e. the monopoly will be better off than it would be if its profit maximization activities were unregulated 33. A regulated natural monopoly that must set price equal to average cost will a. suffer an economic loss b. earn a net economic profit c. earn a normal profit d. earn so little that it will close in the long run e. earn no profits of any kind 34. Compared to the profit-maximizing outcome, average cost pricing (setting the price where the average total cost and demand curves intersect) in natural monopoly leads to a. all of the following b. a higher price c. decreased consumer surplus d. the elimination of economic profit e. less output 35. According to the special interest theory, the licensing of beauticians would be a. desired by consumers to promote the public interest b. desired by beauticians to promote the public interest c. discouraged by all beauty salons, large or small d. desired by some beauticians to restrict entry into the profession e. done strictly at the initiative of the government 36. The government often enacts regulation for the benefit of producers because a. the government seeks to regulate in the best interest of the public b. consumers have less information than producers and therefore seek government protection c. consumers have a strong interest in matters that affect their standard of living d. producers have a strong interest in matters that affect their specialized source of income e. producers seek to act in the best interest of the public 37. A monopoly or group of firms acting together as a monopoly a. cannot perform the economic task of resource allocation b. allocates resources in the most efficient way possible c. misallocates resources by producing more output than a competitive industry would d. misallocates resources by producing where the marginal benefit of the final unit produced exceeds its marginal cost e. misallocates resources by producing where the marginal benefit of the final unit produced is less than its marginal cost 38. According to the special interest theory, a. economic regulation is designed to promote social welfare b. producers may be able to influence regulators to impose restrictions favorable to producers c. groups of consumers with special interests may be able to control a regulatory agency to their own benefit d. foreign lobbyists may be able to control a regulatory agency to their own benefit e. the fighting between special interest groups over economic regulation may cancel out effects of such regulation 51. Suppose that in your apartment, whenever you flush the toilet it reduces the water pressure, and the cold water available, to the showers in neighboring apartments. In this instance, when someone is in the shower and you flush the toilet, it a. produces a positive externality b. is a good example of the common pool problem c. is a public good d. should be subject to government restrictions e. produces a negative externality 52. All of the following are examples of negative externalities except a. water pollution b. your roommate going on a diet c. second-hand smoke d. loud conversation in the workplace e. your neighbor building a bomb shelter on her front lawn 53. Property rights can be defined and enforced a. only by the government b. only by ethical norms c. by the government and by ethical norms d. only through constant renegotiation e. by government, by informal social actions, and by ethical norms 54. A resource is nonexcludable if a. only a few people have the right to use it b. the rights to use it are determined by government c. it is difficult to ascertain who has the property right to use it d. it is costly or impossible to keep someone from using it e. it is costly or impossible to use 55. A resource is nonappropriable if a. everyone captures its value b. its value is set by government c. it is difficult for someone to capture its value d. it is costly or impossible to keep someone from using it e. its value is zero 56. If periodic use of a resource can be continued indefinitely, that resource is said to be a. removable b. renewable c. cyclical d. recyclable e. part of a common pool 57. Fish are a. always renewable resources b. renewable resources whenever property rights are well defined c. renewable resources if they are taken and replaced at rates that provide a steady supply d. renewable resources only if they are replaced at a rate that exceeds the rate at which they are caught e. renewable resources whenever property rights are well defined and can be easily enforced 58. All of the following are sources of negative externalities except one. Which is the exception? a. a paper mill that pollutes a river b. a person who throws a beer can out the window of a moving car c. cars, which emit carbon monoxide d. a solar water heater which is outside and obscure from view e. products that contribute to the greenhouse effect 59. Unpriced by-products of production or consumption that impose costs on other consumers or other firms are known as a. negative externalities b. effluent fees c. pollution rights d. positive externalities e. moral hazards 60. The common pool problem a. occurs whenever goods are not rivals in consumption b. is an example of adverse selection c. arises whenever property rights are well defined d. is usually caused by government intervention into private markets e. is one in which resources to which access is unrestricted will tend to be overused 61. Open-access resources tend to be a. conserved b. taxed c. overused d. efficiently used e. used in an environmentally sound manner 62. When a resource is an open-access resource, a. each individual in the society owns it b. the group owns it c. no one owns it d. the government owns it e. some nonprofit agency owns it 63. To solve the common pool problem in fishing, governments can __________, or __________. a. impose a depletion tax; prohibit resource use entirely b. impose a depletion tax; restrict output c. introduce an offsetting positive externality; prohibit resource use entirely d. use a variable technology; impose a depletion tax e. restrict output; prohibit resource use entirely 64. Firms that emit toxins into the air tend to a. underproduce because the private cost of production exceeds the social cost b. overproduce because the social cost of production exceeds the private cost c. produce the same as nonpolluting firms d. produce at the socially optimal amount e. cover pollution costs in the product's price 65. If at market equilibrium the marginal social cost of producing a good exceeds the marginal private cost, a. not enough of the product is being produced b. the price charged for the good is too high c. the good produces a positive externality d. the good produces a negative externality e. the government should produce the good 66. When competitive market equilibrium determines a level of output for which the marginal social cost exceeds the marginal social benefit, the private equilibrium results in a. a positive externality b. a Coase equilibrium c. underproduction of the product d. a market failure e. external benefits 67. Society's total cost of producing a good a. considers only the cost to the firm b. considers only the external cost c. considers all private and external costs d. measures the output level that maximizes the firm's profits e. measures the output level that minimizes the firm's losses 68. In order to increase society's total benefit, a good that produces a negative externality should be a. taxed b. provided by the government c. ignored d. subsidized e. exported 78. Which of the following is most likely to happen to open-access wildlife resources? a. They will be used efficiently. b. They will not be used at all. c. It will be unprofitable to use them. d. They will be used but will generate no profit. e. They will become extinct. 79. The destruction of tropical rain forests results in a. a possible decrease in the greenhouse effect b. a decrease in gases in the atmosphere c. a decrease in the recycling of carbon dioxide d. reduced erosion e. better long-term growth prospects in the local economy 80. Rain forests are often cut down because a. farmers and the government are greedy b. the countries involved do not understand the environment c. the countries involved are gaining short-term relief from poverty at the cost of long-term environmental preservation d. the countries involved are gaining long-term environmental benefits by doing so e. cutting them down results in less erosion 81. Sailboats and motorboats share Emerson Lake, which nobody owns. The sailors say the motorboats are a hazard; the motorboaters say it's the other way around. Frequent collisions occur, with many injuries and some deaths every year. If the City of Emerson were to buy the lake itself, a. the problem would be solved, as the lake would have an owner b. the problem would be solved, as no one could use the lake c. the city would still have to assign property rights so that use of the lake would be efficient d. the city would give the right to use the lake to the larger group e. the city would give the right to use the lake to the richer group 82. Puerta Vallarta International Airport is near the coast. At night planes take off and land from the west, over the water. During the day planes approach and leave from the east, over Puerta Vallarta neighborhoods. This situation implies that residents have property rights to a. the space above their homes at all times b. the space over the ocean c. the use of the airport d. peace and quiet at night e. airplanes in the daytime 83. A meditation class meets on the second floor of a building; the first floor is a nightclub. The loud music from the club disturbs the classes. Which of the following best explains why the negative externality faced by the class arises? a. The class has no property right to a quiet environment. b. The club has a property right on the ground floor. c. The class has a property right on the second floor. d. The club uses an inappropriate technology (i.e., no soundproofing). e. Both the club and class are profitable. 84. A meditation class meets on the second floor of a building; the first floor is a nightclub. The loud music from the club disturbs the classes. The club could be soundproofed for a cost of $5,000 or move at a cost of $8,000. The class can't soundproof enough to overcome the music, but could be moved for $4,000. According to Coase, a. the club should be soundproofed so both businesses can stay open b. the club should be soundproofed because it is the one generating the externality c. the club should move rather than be soundproofed because eliminating an externality is better than compensating for it d. the class should move because it can eliminate the externality at a lower cost than can the nightclub e. whichever business has been there longer has the overriding property right; the other should adjust 85. The Coase theorem says that, if the appropriate property right is assigned to __________, an efficient solution to an externality problem will be achieved. a. the one causing the externality b. the victim of the externality c. the party that can avoid the externality at the higher cost d. the party that can avoid the externality at the lower cost e. either one of the parties involved 86. According to the Coase theorem, externality problems may be solved if the parties involved can negotiate. Which of the following is also needed? a. clearly defined bargaining costs b. enforceable bargaining costs c. clearly defined, enforceable property rights and low bargaining costs d. a property right that cannot be bought or sold e. government regulation 87. A pollution tax a. is itself a form of negative externality b. is a positive externality used to offset a negative one c. is a price per unit of discharge of pollution d. is a tax on pollution control equipment e. may cause a common pool problem 88. The price of a pollution right is a. determined by consumers b. determined by government c. a user charge d. determined by supply and demand e. a subsidy 89. Markets for pollution rights a. have never been tried in the United States b. assign property rights to those who value them least c. allow the government to assign property rights d. enable those who value them most to pollute e. are less efficient than pollution standards 90. Suppose environmental groups pressure the local government to reduce the number of pollution rights to be sold. Other things equal, a. pollution would not be affected b. the price of pollution rights would rise, and pollution would fall c. the price of pollution rights would fall, and pollution would also fall d. the price of pollution rights would fall, and pollution would rise e. the price of pollution rights would rise, and pollution would rise 91. Untreated raw sewage is dumped directly into rivers and oceans a. only in less-developed economies b. only in rural areas c. only in urban areas d. in every large city in the United States e. in some of the largest U.S. cities 92. The Superfund was designed to clean up a. the acid rain problem b. air pollution from automobiles, buses, and trucks c. water pollution from agricultural sources (i.e., pesticides) d. water pollution from dumping raw sewage e. toxic waste dumps 93. In the U.S., people tend to discard items rather than repair them because a. Americans are lazy b. of the high opportunity cost of time c. it is costly to use land for waste disposal d. high wages in the waste disposal industry discourages repairs e. low wages in the repair industry encourages disposal Answer Key 1. > d TOPIC: Labor Supply and Utility Maximization MI_5e12 Ch 12 #20 (MC #20) DIF: 3 2. > d TOPIC: Labor Supply and Utility Maximization MI_5e12 Ch 12 #25 (MC #25) DIF: 3 3. > d TOPIC: Labor Supply and Utility Maximization MI_5e12 Ch 12 #35 (MC #35) DIF: 1 4. > b TOPIC: Wages and Individual Labor Supply MI_5e12 Ch 12 #50 (MC #50) DIF: 5 5. > a TOPIC: Wages and Individual Labor Supply MI_5e12 Ch 12 #52 (MC #52) DIF: 3 6. > d TOPIC: Wages and Individual Labor Supply MI_5e12 Ch 12 #53 (MC #53) DIF: 3 7. > e TOPIC: Wages and Individual Labor Supply MI_5e12 Ch 12 #69 (MC #69) DIF: 5 8. > b TOPIC: Wages and Individual Labor Supply MI_5e12 Ch 12 #72 (MC #72) DIF: 3 9. > c TOPIC: Nonwage Determinants of Labor Supply MI_5e12 Ch 12 #93 (MC #93) DIF: 3 10. > a TOPIC: Why Wages Differ MI_5e12 Ch 12 #108 (MC #108) DIF: 3 11. > b TOPIC: Why Wages Differ MI_5e12 Ch 12 #109 (MC #109) DIF: 3 12. > e TOPIC: Why Wages Differ MI_5e12 Ch 12 #111 (MC #111) DIF: 3 13. > c TOPIC: Why Wages Differ MI_5e12 Ch 12 #128 (MC #128) DIF: 5 14. > c TOPIC: Why Wages Differ MI_5e12 Ch 12 #132 (MC #132) DIF: 3 15. > d TOPIC: Kinds of Unions MI_5e12 Ch 12 #148 (MC #148) DIF: 1 16. > b TOPIC: Inclusive, or Industrial, Unions MI_5e12 Ch 12 #187 (MC #187) DIF: 3 17. > b TOPIC: Inclusive, or Industrial, Unions MI_5e12 Ch 12 #189 (MC #189) DIF: 5 18. > a TOPIC: Inclusive, or Industrial, Unions MI_5e12 Ch 12 #193 (MC #193) DIF: 3 19. > b TOPIC: Exclusive, or Craft, Unions MI_5e12 Ch 12 #217 (MC #217) DIF: 3 20. > c TOPIC: Exclusive, or Craft, Unions MI_5e12 Ch 12 #218 (MC #218) DIF: 3 21. > e TOPIC: Increasing Demand for Union Labor MI_5e12 Ch 12 #226 (MC #226) DIF: 3 22. > b TOPIC: Increasing Demand for Union Labor MI_5e12 Ch 12 #235 (MC #235) DIF: 3 23. > a TOPIC: Recent Trends in Union Membership MI_5e12 Ch 12 #240 (MC #240) DIF: 3 24. > c TOPIC: Recent Trends in Union Membership MI_5e12 Ch 12 #244 (MC #244) DIF: 3 25. > c TOPIC: Recent Trends in Union Membership MI_5e12 Ch 12 #249 (MC #249) DIF: 3 26. > a TOPIC: Business Behavior and Public Policy MI_5e15 Ch 15 #3 (MC #3) DIF: 3 27. > c TOPIC: Regulating Natural Monopolies MI_5e15 Ch 15 #17 (MC #17) DIF: 3 28. > a TOPIC: Regulating Natural Monopolies MI_5e15 Ch 15 #20 (MC #20) DIF: 3 29. > c TOPIC: Regulating Natural Monopolies MI_5e15 Ch 15 #21 (MC #21) DIF: 1 30. > e TOPIC: Regulating Natural Monopolies MI_5e15 Ch 15 #22 (MC #22) DIF: 1 31. > c TOPIC: Setting Price Equal to Marginal Cost MI_5e15 Ch 15 #29 (MC #29) DIF: 5 32. > a TOPIC: Setting Price Equal to Marginal Cost MI_5e15 Ch 15 #30 (MC #30) DIF: 3 33. > c TOPIC: Setting Price Equal to Average Cost MI_5e15 Ch 15 #45 (MC #45) DIF: 1 57. > c TOPIC: Renewable Resources MI_5e17 Ch 17 #14 (MC #14) DIF: 3 58. > d TOPIC: Renewable Resources MI_5e17 Ch 17 #15 (MC #15) DIF: 1 59. > a TOPIC: Renewable Resources MI_5e17 Ch 17 #22 (MC #22) DIF: 1 60. > e TOPIC: Resolving the Common-Pool Problem MI_5e17 Ch 17 #26 (MC #26) DIF: 1 61. > c TOPIC: Resolving the Common-Pool Problem MI_5e17 Ch 17 #27 (MC #27) DIF: 1 62. > c TOPIC: Resolving the Common-Pool Problem MI_5e17 Ch 17 #28 (MC #28) DIF: 1 63. > b TOPIC: Resolving the Common-Pool Problem MI_5e17 Ch 17 #31 (MC #31) DIF: 3 64. > b TOPIC: External Costs with Fixed Technology MI_5e17 Ch 17 #44 (MC #44) DIF: 3 65. > d TOPIC: External Costs with Fixed Technology MI_5e17 Ch 17 #45 (MC #45) DIF: 3 66. > d TOPIC: External Costs with Fixed Technology MI_5e17 Ch 17 #48 (MC #48) DIF: 3 67. > c TOPIC: External Costs with Fixed Technology MI_5e17 Ch 17 #51 (MC #51) DIF: 3 68. > a TOPIC: External Costs with Fixed Technology MI_5e17 Ch 17 #52 (MC #52) DIF: 1 69. > a TOPIC: External Costs with Fixed Technology MI_5e17 Ch 17 #54 (MC #54) DIF: 3 70. > b TOPIC: External Costs with Fixed Technology MI_5e17 Ch 17 #55 (MC #55) DIF: 3 71. > b TOPIC: External Costs with Fixed Technology MI_5e17 Ch 17 #59 (MC #59) DIF: 5 72. > a TOPIC: External Costs with Variable Technology MI_5e17 Ch 17 #66 (MC #66) DIF: 5 73. > b TOPIC: External Costs with Variable Technology MI_5e17 Ch 17 #68 (MC #68) DIF: 3 74. > d TOPIC: External Costs with Variable Technology MI_5e17 Ch 17 #70 (MC #70) DIF: 5 75. > b TOPIC: External Costs with Variable Technology MI_5e17 Ch 17 #71 (MC #71) DIF: 3 76. > b TOPIC: External Costs with Variable Technology MI_5e17 Ch 17 #72 (MC #72) DIF: 3 77. > d TOPIC: External Costs with Variable Technology MI_5e17 Ch 17 #81 (MC #81) DIF: 5 78. > e TOPIC: CASE STUDY: Destruction of the Tropical Rain Forest MI_5e17 Ch 17 #85 (MC #85) DIF: 3 79. > c TOPIC: CASE STUDY: Destruction of the Tropical Rain Forest MI_5e17 Ch 17 #89 (MC #89) DIF: 3 80. > c TOPIC: CASE STUDY: Destruction of the Tropical Rain Forest MI_5e17 Ch 17 #91 (MC #91) DIF: 3 81. > c TOPIC: The Coase Analysis of Externalities MI_5e17 Ch 17 #97 (MC #97) DIF: 1 82. > d TOPIC: The Coase Analysis of Externalities MI_5e17 Ch 17 #98 (MC #98) DIF: 1 83. > a TOPIC: The Coase Analysis of Externalities MI_5e17 Ch 17 #100 (MC #100) DIF: 1 84. > d TOPIC: The Coase Analysis of Externalities MI_5e17 Ch 17 #101 (MC #101) DIF: 3 85. > e TOPIC: The Coase Analysis of Externalities MI_5e17 Ch 17 #104 (MC #104) DIF: 1 86. > c TOPIC: The Coase Analysis of Externalities MI_5e17 Ch 17 #105 (MC #105) DIF: 1 87. > c TOPIC: A Market for Pollution Rights MI_5e17 Ch 17 #124 (MC #124) DIF: 1 88. > d TOPIC: A Market for Pollution Rights MI_5e17 Ch 17 #127 (MC #127) DIF: 1 89. > d TOPIC: A Market for Pollution Rights MI_5e17 Ch 17 #128 (MC #128) DIF: 3