Opportunity Cost and Market Equilibrium: Analyzing Consumer Behavior and Supply - Prof. La, Exams of Microeconomics

Download Opportunity Cost and Market Equilibrium: Analyzing Consumer Behavior and Supply - Prof. La and more Exams Microeconomics in PDF only on Docsity! Sample Final Exam Ec 201 Spring, 2009 Michigan State University L. Martin 1. The term opportunity cost refers to the a. market price of a good; b. market price net of any subsidies; c. best foregone alternative;* d. average cost including the normal return to invested capital; e. marginal private plus marginal external costs. 2. Fred has a budget of $400 for entertainment expenses each month. He likes to eat dinner in restaurants for about $40 each and to buy books for about $20 each. The opportunity cost of dinner in a restaurant is a. 2 books;* b. .5 books; c. 20 books; d. 10 books; e. $40. 3. Use the data from question #2. Draw Fred’s budget constraint with books measured on the horizontal axis. Suppose that the price of books rises to $25. Fred’s budget constraint a. shifts out parallel; b. shifts in parallel; c. rotates, becoming steeper;* d. rotates, becoming flatter; e. does not change unless Fred chooses a different bundle. 4. Continue with the data from questions #2 and #3. The substitution effect of this price change leads Fred to a. buy more books; b. buy fewer books;* c. buy more books if books are a normal good and fewer if books are inferior; d. buy fewer books if books are a normal good and more if books are inferior; e. the answer depends on the price elasticity of demand. 5. Continue with the data from questions #2 and #3. The income effect of this price change leads Fred to a. buy more books; b. buy fewer books; c. buy more books if books are a normal good and fewer if books are inferior; d. buy fewer books if books are a normal good and more if books are inferior;* e. The answer depends on the price elasticity of demand. 6. If Fred’s demand for books is elastic, then the amount that he spends on books will a. increase; b. decrease;* c. increase if books are a normal good and decrease if books are inferior; d. increase if books are an inferior good and decrease if books are normal; e. There will be no change in his expenditure on books. 7. A worker in Austria can produce either 4 kegs of beer or 6 cases of sausage in the same time that a Polish worker can produce 2 kegs of beer or 4 cases of sausage. These facts imply a. Poland has comparative advantage in beer; b. Austria has comparative advantage in sausage; c. Poland has comparative advantage in sausage;* d. Poland has absolute advantage in sausage; e. None of the above. 8. Workers specialize in jobs where they have a. compensating differentials; b. efficiency wages; c. comparative advantage;* d. absolute advantage; e. diminishing returns. 9. If Tanzania has comparative advantage in Coffee, a. it will import coffee; b. it will export coffee;* c. it will run a trade deficit; d. it will import capital from abroad; e. it will impose tariffs on coffee. 10. If a country runs a trade surplus, a. it will import capital from abroad; b. it will export capital;* c. its imports exceed its exports; d. it has improved its comparative advantage; e. it has improved its absolute advantage. 11. If the price elasticity of demand equals 0.5, then a 10% increase in price will bring about a a. 20% decrease in quantity demanded; b. 5% decrease in quantity demanded;* c. 20% increase in quantity demanded; d. 5% increase in quantity demanded; e. 10% decrease in quantity demanded. 24. Use the data from question 23. An increase in his non-wage income will cause Lamont to a. work more due to the income effect; b. work more due to the substitution effect; c. work less due to the income effect;* d. work less due to the substitution effect; e. no change his work effort. 25. Bob currently takes home $30,000 per year after taxes. He expects to receive $10,000 after taxes when he retires in 20 years. Over this period he could earn 200% on any money he invested in the company pension plan. The slope of his two-period budget constraint equals a. 3;* b. 1.3; c. 1.2; d. 201; e. none of the above. 26. Use the data from question 25. An increase in his rate of return will cause Han to a. save more due to the income effect; b. save less due to the income effect; c. save more due to the substitution effect; d. save less due to the substitution effect; e. b. and c.* 27. The idea that asset characteristics, such as liquidity and risk, as perfectly reflected in their prices is called a. arbitrage; b. diversification; c. efficient market theory;* d. compensating differentials; e. comparative advantage. 28. If two assets have the same liquidity, tax treatment and expected returns, the riskier asset will a. sell for a higher price; b. sell for a lower price;* c. sell for the same price; d. sell for a higher price if it is a stock and a lower price if it is a bond; e. sell for a lower price if it is a stock and a higher price if it is a bond; 29. The extra output produced by the last worker is called the a. marginal cost; b. marginal product;* c. value of the marginal product; d. average variable cost; e. marginal revenue. 30. The competitive firm’s demand for labor is the a. marginal product of labor; b. marginal cost; c. marginal cost above the shut-down point; d. value of the marginal product;* e. marginal revenue. 31. The competitive firm finds the profit maximizing quantity to supply be setting a. wage equal to the marginal product; b. wage equal to the value of the marginal product; c. price equal to marginal revenue; d. marginal cost equal to average cost; e. price equal to marginal cost.* 32. For a monopoly marginal revenue is less than price because a. the production function embodies diminishing returns; b. of diseconomies of scale; c. profits attract the entry of new competition; d. in order to sell more units price must be lowered on all units;* e. the corporate income tax is progressive, taking a larger fraction of income for high income firms. 33. When firms produce differentiated products and there is free entry, the market structure is called a. oligopoly; b. monopoly; c. monopsony; d. monopolistic competition;* e. natural monopoly. 34. When there are high fixed costs and low marginal costs, the market structure is called a. oligopoly; b. monopoly; c. monopsony; d. monopolistic competition; e. natural monopoly.* 35. When price equals average cost, the a. accounting profits equal zero; b. firms make a normal rate of return on invested capital; c. firms will exit the market; d. new firms will enter the market; e. there is too much variety. 36. Oligopolies may successfully collude, charging monopoly prices and earning monopoly profits by using a. the prisoner’s dilemma; b. trigger strategies;* c. anti-trust; d. natural monopoly regulation; e. economies of scale. 37. If price equals average cost in a natural monopoly, then a. the firm will lose money; b. the allocation of resources in this market will be efficient; c. there will be no deadweight burden; d. all of the above; e. none of the above.* 38. In oligopolies collusion is more likely when a. costs are high; b. costs are low; c. there is a small number of firms and the industry is unstable; d. there is a large number of firms and the industry is stable; e. there is a small number of firms and the industry is stable;* 39. The exclusive right to produce and sell an invention or innovation is called a a. patent;* b. copyright; c. research and development; d. technology; e. deadweight burden. 40. Compensating differentials are wage differences resulting from a. the fact the some workers are more productive than others; b. the fact that employers are unlikely to make offers to workers who currently earn low wages, inferring that these workers may be less productive; c. difference in job characteristics;* d. differences in human capital among workers; e. the fact that workers must search to find job offers and learn of alternative wages. Problems 1. (4 pts) Use Supply and Demand analysis to show and explain the impact of each of the following. a. What is the effect of an increase in income on the market for closet organizing systems (a normal good)? Demand shifts to the right. b. What is the impact of an increase in wages on the market for closet organizing systems? Supply shifts to the left (or up vertically) c. What is the impact of a price ceiling set above the market clearing price on the market for closet organizing systems? No effect d. What is the impact of a tax of $5 per unit on the market for closet organizing systems? Supply shifts up by $5. Price rises by less than $5. 2. (4 pts) Consider the market for closet organizing systems. The supply and demand are given below. Demand Supply Price Quantity Price Quantity $100 10 $10 100 $90 25 $20 200 $80 50 $30 300 $70 100 $40 400 $60 150 $50 500 $50 200 $60 600 $40 250 $70 700 $30 300 $80 800 $20 350 $90 900 $10 400 $100 1000 a. Find the equilibrium price and quantity. Price ___$30____ Quantity ___300____ b. Suppose that a price floor of $60 is imposed. What is the size of the surplus or shortage? surplus ____450______ shortage __________ c. Suppose that a tax of $60 per unit (paid by suppliers) is imposed. Find the equilibrium price and quantity. Price ___$70____ Quantity ____100___ d. Suppose that this market is in a small, open economy, that the world price is $20. Will the good be exported or imported? How much will be exported or imported? Exports = __150_____ Imports = __________ 3. (2 pts) After our stirring victory in the NCAA men’s basketball tournament, demand for Michigan State clothing is at an all time high. The demand for T-shirts is given below. The marginal cost of a T-shirt with official MSU logos is $10. Price Quantity Total Revenues Marginal Revenue $30 10,000 $25 20,000 $20 30,000 $15 40,000 $10 50,000 $5 60,000 a. Complete table above. b. What is the profit maximizing price? ___$20_____ 4. (2 pts) Profit maximization. Briteway Smiles, one of those walk-in teeth whitening salons that are springing up all over the country, recently opened another outlet at the Birdsong Mall on the booming west side. The production function is given in the table below. Smile technicians are paid $200 per day, and customers are charged $100 for the regular treatment. Smile technicians Treatments Marginal product Value of the marginal product 1 5 2 9 3 12 4 14 5 15 a. Complete the table above. b. Find the profit maximizing number of technicians to hire. ______4________