Principles of Microeconomics - Final Review Sheet | ECON 2000, Study notes of Microeconomics

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SI: Hana Chang Sessions (130 Howe Russell) hchang4@lsu.edu Sun (12/8) 6:00 PM ECON 2000 Final Exam Review 1) A modern economy like the U.S. economy is largely organized by a) benevolent individuals pursuing the public interest b) individuals following their own self interest, doing what seems best for themselves c) individuals forming cooperative enterprises and labor unions d) governments at all levels coordinating the activities of firms and citizens e) the directions of international economic consortiums 2) Scarcity is likely to be a) unique to the twentieth century b) eliminated with a better understanding of economics c) a problem that will be solved by the proper use of available resources d) a problem that will always exist e) a result of the work ethic 3) Most economists agree that a) the mix of market and command principles that exists in the United States is the best b) the optimal mix of market and command systems remains constant over time c) most production and consumption decisions are more efficiently coordinated by markets that through central planning d) command economies have been very successful in distributing income insocially just ways e) government intervention in the economy is only justified in time of war 4) Positive statements a) are falsifiable in principle by appeal to factual evidence b) have no place in economics because economics deals wonly with value judgments c) have been verified by appeal to factual evidence d) are seldom employed in social sciences like economics e) form the basis of all normative arguments 5) The “law of demand” hypothesizes that, other things being equal, a) the lower the price, the greater the demand b) price and quantity demanded are positively related c) the higher the price, the lower the quantity demanded d) price and demand vary inversely e) the higher the income, the highly the quantity demanded 6) A normal good is a good a) that normal people like to consume b) for which demand varies directly with household income c) that everyone normally consumes d) for which demand does not vary with household income e) for which demand varies inversely with household income 7) Good X has a substitute if there exists another good a) the demand for which varies inversely with changes in the price of X b) that is virtually the same c) that has the same price d) that is of equal value e) the demand for which varies directly with changes in the price of X 8) Consider cars and gasoline. Other things being equal, when the price of cars decreases, the demand for gasoline is likely to a) remain unchanged because cars and gasoline are produced independently of one another b) increase because the two goods are complements c) remain unchanged d) decrease because the two goods are complements e) remain unchanged because cars and gasoline are two distinct markets 9) Suppose new medical research suggests that consuming 200 grams of tofu everyday will help to prevent heart disease. The dissemination of this research, other things being equal, is likely to have what impact on the market for tofu? a) Shift the whole demand curve to the right b) Movement along the demand curve to the right c) Shift the whole demand curve to the left d) Movement along the demand curve to the left e) There would likely be no effect 10)An important assumption underlying a demand schedule is that a) quantity demanded and demand mean the same thing b) everything else except the product’s price is being held constant c) the numbers are not important; the general relationship between the varibles is d) household tastes rarely change e) income has little significance to household demand 11)A fall in the price of potatoes, which are used in the production of French fries, will a) have no effect on the supply of French fries b) lead to a decrease in the supply of French fries, causing the supply curve of French fries to shift to the left c) have no effect on the supply of French fries but cause a movement along the supply curve of French fries d) lead to an increases in the supply of French fries, causing the supply curve of French fries to shift to the right e) lead to a decrease in the demand for French fries 20)The income elasticity of demand a) measures the change in income necessary for a given change in quantity demanded b) measures the responsiveness of income to changes in quantity demanded c) measures the responsiveness of quantity demanded to changes in income d) is the ratio of the percentage change in income to the percentage change in quantity demanded 21)The ABC Computer Company spends a lot of money for advertising designed to convince you that their personal computers are superior to all other personal computers. If the ABC Company is successful, the demand for ABC personal computers A) and the demand for other firms’ personal computers will become less price elastic B) and the demand for other firms’ personal computers will become more price elastic C) will become more price elastic but the demand for other firms’ personal computers will become less price elastic D) will become less price elastic but the demand for other firms’ personal computers will become more price elastic 22)Suppose a 10 % increase in the price of steak reduces the consumption of steak by 30%. Such a price rise will induce households to spend a) less of their income on steak b) more of their income on steak c) the same amount on steak as before d) more on products that are complementary with steak 23)Consider two demand curves and the same price change for both. If the resulting percentage change in quantity demanded is greater for one (D1) than the other (D2). We can conclude A) that D2 is more elastic than D1 B) that D1 is inelastic and D2 is elastic C) that D1 is elastic and D2 is inelastic D) that D1 is more elastic than D2 E) nothing about their relative elasticities 24)If demand is price elastic, a) a 1 percent decrease in the price leads to an increase in the quantity demanded that exceeds 1 percent b) a 1 percent increase in the price leads to an increase in the quantity demanded that exceeds 1 percent c) the price is very sensitive to any shift of the supply curve d) a 1 percent decrease in the price leads to a decrease in the quantity demanded that is less than 1 percent 25)Of the following, demand is likely to be the least elastic for a) pink grapefruit b) iceberg lettuce c) insulin for diabetics d) diamonds 26)Consumers will bear a larger burden of an excise tax if a) both demand and supply are relatively elastic b) demand is relatively elastic ands supply is relatively inelastic c) the tax is collected by firms rather than remitted directly to the government by consumers d) demand is relatively inelastic and supply is relatively elastic e) both demand and supply are relatively inelastic 27)If a product’s income elasticity is -3.4, then we can conclude that a) the product has rising income-consumption curve b) an increase in income will lead to an increase in demand for the product c) the product is certainly a necessity d) the product is a normal good e) a decrease in income will lead to an increase in demand for the product 28)At any disequilibrium price, whether controlled or not, the quantity actually exchanged is determined by a) the greater of quantity demanded and quantity supplied b) government decree c) the lesser the quantity demanded and quantity supplied d) the elasticity of demand e) the elasticity of supply 29)In free and competitive markets, shortages are eliminated by a) black market b) price decrease c) rationing d) government price controls e) price increases 30)Refer to Figure 5-1. If the diagram applies to the market for rental housing and P3 represents the maximum rent that can be charged, then a) there will be an excess supply of rental units equal to BD b) there will be excess demand for rental units equal to FC c) windfall profits will be earned by landlords d) there will be excess demand for rental units equal to AF e) units supplied will be reduced relative to the competitive equilibrium by AF rental units 31)The substitution effect is the change in quantity demanded that occurs a) as a result of a change in relative prices with money income held constant b) as a result of a change in relative prices, with real income held constant c) with a change in the relative prices of two or more goods d) when one good is substituted for another e) as a result of a change in absolute prices, with real income held constant 32)A demand curve for a normal good is downward sloping due to a) the income effect b) neither the substitution effect nor the income effect c) the combination of income and substitution effects d) the substitution effect e) the Giffen effect 33)For normal goods, the substitution and income effects of a price decrease will a) both decrease the quantity of the good demanded b) both increase the quantity of the good demanded c) the substitution effect will increase the quantity of the good demanded while the income effect will decrease the quantity of the good demanded b) average fixed cost c) total fixed cost d) total cost 45)If marginal cost is below average total cost, average total cost will a) be maximized b) be decreasing c) be increasing d) remain constant 46)Assume the wool industry is perfectly competitive. The market demand curve for wool is ________________ and each individual wool producer’s demand curve is _______________. a) downward sloping; horizontal b) horizontal; downward sloping c) horizontal; horizontal d) downward sloping; downward sloping 47)A firm in a perfectly competitive market a) completes actively with other sellers in the industry b) is dependent upon the behavior of its competitors c) is limited in the amount of product it can sell without affecting the price d) is aware of its competitors’ costs e) has no power to influence the market price 48)In order to decide the appropriate output to produce, the manager of a perfectly competitive firm needs to know a) the industry or market supply b) the industry or market demand c) what other firms in the industry are producing d) its competitors’ market strategies e) the prevailing market price for the firm’s output 49)A firm can minimize its losses by shutting down when __________ are less than _________ costs a) variable costs; fixed b) fixed costs; variable c) revenues; variable d) operating profits; sunk 50)As long as price is sufficient to cover___________, the firm is better of by operating rather than by shutting down a) marginal cost b) average fixed cost c) average variable cost d) marginal revenue 51)If a perfectly competitive firm operates in the short run but exits the industry in the long run, then the firm’s short run condition is a) TR > TC b) TR > TVC and TR< TC c) TR<TVC d) TR<TFC 52)In the short run, the profit-maximizing behavior for a price-taking firm requires it to operate where a) P > MR > MC b) AVC = AR c) P=MC, given that P is greater than or equal to AVC d) P = TR = TC e) P = MC, given that P is greater than or equal to ATC 53)Which of the following is the set of conditions necessary for long-run equilibrium for a perfectly competitive firm? a) P = SRMC < SRAC = LRAC b) P > SRMC = SRAC = LRAC c) P = SRMC = SRAC > SRAC d) P = SRMC = SRAC = SRAC 54)The idea that the demand for auto workers stems from the demand for automobiles is a) the value of the marginal product of auto workers b) derived demand c) indirect demand d) output demand 55)A decrease in the wage rate will change a) only the amount of labor hired b) the amount of labor employed, and it may also change the amount of other inputs employed c) the price of the firm charges for the product, but it will not affect the demand for any of the inputs d) the firm’s profit-maximizing level output, but not its usage of inputs 56)Factors of production that can be used together to enhance the other’s productivity are a) substitutable inputs b) complementary inputs c) duplicate inputs d) proportionate inputs 57)the marginal revenue product a) is the product of the marginal product of labor and the price of the output b) eventually increases as labor input increases c) measures the benefit to the firm from hiring an additional unit of labor d) both A and C are correct 58)If the price of the product produced by labor increases, the marginal revenue product of labor curve will a) be unaffected because productivity of labor has not changed b) shift to the left c) shift to the right d) become more elastic 59)If the supply of labor increases, which of the following events will occur? a) the wage rate will fall and firms will increase employment up until the point where MRP equals the new wage rate b) the wage rate will fall and firms will decrease employment to the point where MRP equals the new wage rate c) the wage rate will increase and firms will decrease employment to the point where MRP equals the new wage rate d) the wage rate will increase and firms will increase employment up until the point where MRP equals the new wage rate 60)For a pure monopolist marginal revenue is less than price because: a) the monopolist’s demand curve is perfectly elastic b) the monopolist’s demand curve is perfectly inelastic c) when a monopolist lowers price to sell more output, the lower price applies to all units sold d) the monopolist’s total revenue curve is linear and slopes upward to the right 61)Refer to the diagram. At the profit-maximizing level of output, total revenue will be: a) NM times 0M b) 0AJE c) 0EGC d) 0EHB 70)Refer to Table 13-1. Is there a dominant strategy for Star Connections and if so, what is it? a) Yes, Star Connections should increase its advertising spending b) No, its outcome depends on what Godrickporter does c) Yes, Star Connections should leave its advertising spending as is d) Yes, Star Connections’ dominant strategy is to collude with Godrickporter 71)Is there a dominant strategy for Godrickporter and if so, what is it? a) Yes, Godrickporter should increase its advertising spending b) No, its outcome depdns on what Star Connections does c) Yes, Godrickporter’s dominant strategy is to collude with Star Connections d) Yes, Godrickpoter should reduce its advertising spending 72)What is the Nash equilibrium in this game? a) There is no Nash equilibrium b) Godrickporter increases its advertising budget, but Star Connections does not c) Star Connections increases its advertising budget, but Godrickporter does not d) Both Godrickporter and Star Connections increase their advertising budgets 73)An externality is a) a cost or benefit resulting from some activity or transaction that is imposed or bestowed on parties outside the activity or transaction b) the total cost to society of producing an additional unit of a good or service c) the amount a customer pays to consume an additional amount of a particular good d) a problem intrinsic to public goods: The good or service is so costly that its provision generally does not depend on whether or not any single person pays 74)When it comes to public goods, it is important to remember a) that government intervention necessarily solves the market failure b) only one level of output can be realized and consumers are willing to pay different amounts for that level c) the free rider problem is difficult to overcome, but the drop-in-the-bucket problem is not d) all goods provided by the government are public goods 75)Property income takes the form of ____________. a) transfer payments b) wages and salaries c) profits, interest, dividends, and rents d) compensating differentials 76)Economic income is a) the amount of money a household can spend during a given time period without increasing or decreasing its net assets b) income from the ownership of real property and financial holdings c) differences in wages that result from differences in working conditions d) payments by government to people who do not currently supply goods or services in exchange 77)Refer to Figure 6-8. Suppose the consumer begins at E1. The income and substitution effects of the reduction in the price of X are presented as follows: a) the distance Q1d shows the substitution effect and the distance Q2e shows the income effect b) the distance de shows the income effect and the distance cd shows the substitution effect c) the distance Q1Q2 shows the income effect and the distance Q2Q3 shows the substitution effect d) the distance Q1Q2 shows the substitution effect and the distance Q2Q3 shows the income effect e) the distance Q1Q3 shows the substitution effect and the distance Q2Q3 shows the income effect