Microeconomic MCQ 1 - Details

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57 questions

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I. The economic surplus of a particular action is A) the value of the action. B) the cost of the action. C) the difference between the benefit and the cost of the action. D) the average of the benefits and costs. E) the ratio of the benefits to the costs.

C) the difference between the benefit and the cost of the action.

2. Marginal utility is defined as the A) additional utility gained by consuming an extra unit of a good. B) total utility from all units consumed of a good. C) average utility gained by consuming an average amount of the good. D) total utility gained by consuming an extra unit of a good. E) change in quantity divided by the change in utility.

A) additional utility gained by consuming an extra unit of a good.

3. If the price elasticity of demand for a good is greater than one, then the demand for that good, with respect to price, is A) elastic D) perfectly elastic B) inelastic E) perfectly inelastic C) unitary elastic

A) Elastic

4. Which one of the following detenninants will cause movements along the supply curve of goodX? A) the price of good X. B) the price of labor used in the production of good X. C) the amount of technology used in the production good X D) the cost of the plant used to produce good X. E) the price of fuel used in the production of good X.

A) the price of good X.

5.Between USA and Nepal, Nepal invests less in new factories and equipments. This will likely cause A) Nepal's production possibilities curve will shift outward faster than USA B) USA's production possibilities curve will shift inward faster than Nepal C) USA's production possibilities curve will shift outward faster than Nepal D) Nepal's production possibilities curve will shift inward faster than USA E) Nepal is producing inside its production possibilities curve, but USA is producing at a point on its production possibilities curve

D) Nepal's production possibilities curve will shift inward faster than USA

6. lf a nation has the lowest opportunity cost of producing a good, that nation has a(n) A) comparative advantage. B) absolute advantage. C) comparative and absolute advantage. D) absolute advantage and possible a comparative advantage. E) relative advantage.

A) comparative advantage.

7. Deadweight loss is A) present in all markets. B) the difference between consumer surplus and producer surplus. C) positive in markets where equilibrium is distorted by price controls or taxes. D) always larger than consumer surplus. E) always smaller than producer surplus.

C) positive in markets where equilibrium is distorted by price controls or taxes.

8. A profit maximizing perfectly competitive firm must decide A) only on what price to charge, taking output as fixed. B) both what price to charge and how much to produce. C) only on how much to produce, taking price of the good as fixed. D) only on which industry to join, taking price and output as fixed. E) only on how much revenue it wishes to collect.

B) both what price to charge and how much to produce.

9.The reason we observe the law of diminishing marginal returns is that A) as production expands, the firm is forced to hire low quality workers. B) firms become less efficient as they produce more. C) workers become fatigued as they are required to produce more. D) equipment breaks down more frequently as production expands. E) the production facility eventually becomes congested if the fim1 keeps hiring workers.

E) the production facility eventually becomes congested if the fim1 keeps hiring workers.

10. If a monopolist is facing a market demand curve equal to P=70-14 *Q, then the slope of the monopolist's marginal revenue curve is A) -28. B) -14. C) -7. D) -1. E) insufficient infonnation is provided to detem1ine the slope.

A) -28.

11. Which of the following is an example of an activity with an external cost? A) Raising honeybees where neighbors on all sides grow apples. B) Keeping the front yard clean. C) Reading a book. D) Having to buy batteries for the new remote that came with a TV. E) Dumping chemicals in a lake

E) Dumping chemicals in a lake

12. The tragedy of the commons refers to the A) overuse of resources that have no price. B) plight of the common man. C) under production of external benefits. D) pollution of our natural resources. E) overuse of resources that have no cost.

A) overuse of resources that have no price.

13. Suppose, production of a good is accompanied by an external cost= $2/unit, social MC equals A) private MC - $2 D) private demand - $2 B) private MC + $2 E) private demand + $2 C) private MC - $0

B) private MC + $2

14. In the case of either a positive or negative externality, it will always be true that, relative to the social optimum, A) the price will be too low. D) demand curve will be lower. B) the price will be too high. E) supply curve will be higher. C) the quantity will be too large.

A) the price will be too low.

15. Constant returns to scale occur when a doubling of all inputs A) doubles the price of outputs. B) more than doubles output. C) less than doubles the price of the inputs. D) exactly doubles output. E) less than doubles output.

D) exactly doubles output.

16. As the price of gasoline increases, the quantity demanded of gasoline decreases. This is an application of A) the law of supply B) environmental economics C) the law of demand D) how government organizations deal with pollution E) needs versus wants

C) the law of demand

17. Market power measures the film's ability to A) under cut its competitors. B) resist union wage demands. C) raise its price without losing all of its sales. D) influence the price its competitors charge. E) force consumers to pay higher prices.

C) raise its price without losing all of its sales.

18.For two goods, A and B, the rational spending rule is expressed as A) MUA =MUB. B) MUA*MUB =PA* PB. C) (MUA /PB)= (MUB IP A)- D) (MUA IP A)= (MUB / PB)- E) (MU A I MUB) = (PB IP A)-

C) (MUA /PB)= (MUB IP A)-

19.In a competitive labor market, the equilibrium wage rate is detennined by A) custom and tradition. B) employers. C) the intersection of labor demand and labor supply. D) employees. E) government regulation.

C) the intersection of labor demand and labor supply.

20.The general rule governing the hiring of workers is to A) minimize labor costs. B) minimize labor costs per unit. C) equate total labor costs to total labor benefits. D) maximize marginal product. E) equate marginal labor costs to marginal labor benefits.

E) equate marginal labor costs to marginal labor benefits.

1. In order to understand how the price of a good is determined in the free market, one must account for A) the desires of demanders exclusively. B) the desires of suppliers exclusively. C) the desires of governmental agencies exclusively D) the desires of lobbyists exclusively. E) the desires of demanders and suppliers.

E) the desires of demanders and suppliers.

2. The quantity of Revlon nail polish demanded by Jen decreased after the price of Revlon nail polish increased. Jen decides to find a cheaper brand of nail polish. This is called A) substitution effect of a price change D) increase in buyer's reservation price B) income effect of a price change E) shift in the supply curve C) decrease in buyer's reservation price

A) substitution effect of a price change

3. If the price elasticity of demand for pineapple is 0.75, a 4% increase in the price of pineapple will lead to a A) 3% decrease in the quantity demanded of pineapple B) 3% increase in the quantity demanded of pineapple C) 4% decrease in the quantity demanded of pineapple D) 3/16% increase in the quantity demanded of pineapple E) 16/3% decrease in the quantity demanded of pineapple

A) 3% decrease in the quantity demanded of pineapple

4. The scarcity principle applies to A) all decisions. B) only market decisions, e.g., buying a car. C) only non-market decisions, e.g., watching a sunset. D) only the poor. E) only the wealthy.

A) all decisions.

Use the following to answer questions 5-6: Number of Apples / Total Utility 1 20 2 35 3 45 4 50 5 45 5.The marginal utility of consuming the 2nd apple is A) 10 B) 15 C) 20 D) 35 E) 45

B) 15

6.The marginal utility of consuming the 5th apple is A) -5 B) 0 C) 5 D) IO E) 15

A) -5

7. Which of the following factors of production is likely to be variable in the short run? A) The location of the finn. B) The number of employee-hours. C) The size of the fim1's plant or office. D) The amount of specialized machinery used. E) The number of features in a custom designed software application the finn uses.

B) The number of employee-hours.

Use the following to answer questions 8-10: In the town of SoccerBorough, the equilibrium price for soccer balls is $12 each and the quantity exchanged at that price is 200 balls. 8.If the price is $10 each, the quantity exchanged in the market of SoccerBrough will be A) more than 200 balls D) about 240 balls B) exactly 200 balls E) zero C) less than 200 balls

A) more than 200 balls

9.Ifthe price is $10, the quantity sold will be an amount that A) buyers wish to buy B) sellers offer C) is reached in equilibrium D) the local government wants the seller to sell E) is more than equilibrium quantity

E) is more than equilibrium quantity

10.Ifthe price is $15, the quantity sold will be an amount that A) buyers wish to buy B) sellers offer C) is reached in equilibrium D) the local government wants the seller to sell E) is more than equilibrium quantity

A) buyers wish to buy

11. Suppose all firms in a perfectly competitive industry are experiencing economic profits. One can hypothesize that A) market price will fall. D) the number of foms will not change. B) market supply will decrease. E) market demand will decrease. C) market demand will increase.

A) market price will fall.

12. Market power measures the firm's ability to A) under cut its competitors. B) resist union wage demands. C) raise its price without losing all of its sales. D) influence the price its competitors charge. E) force consumers to pay higher prices.

C) raise its price without losing all of its sales.

13. Constant returns to scale occur when a doubling of all inputs A) doubles the price of outputs. B) more than doubles output. C) less than doubles the price of the inputs. D) exactly doubles output. E) less than doubles output.

D) exactly doubles output.

14. Given the total cost function, TC=l20+12*Q, the average cost function is A) 12*Q+l2/Q. B) 120/Q +12. C) 120*Q+l2*Q2. D) 120*Q+12. E) impossible to calculate with the infom1ation provided.

B) 120/Q +12

15. Assume that reading economics produces a positive externality. It will be the case that the _____ than the socially optimal amount. A) supply curve for reading will be greater B) price of reading will be greater C) supply curve for reading will be less D) demand curve for reading will be greater E) demand curve for reading will be less

C) supply curve for reading will be less

16. A 65% chance of winning $10 and a 35% chance of losing $5 would be classified as a(n) A) better than fair gamble. D) fair gamble. B) worse than fair gamble. E) expected value. C) trivial gamble.

A) better than fair gamble

17.The marginal product of the fomih worker is A) 110. B) 130. C) 140. D) 145. E) 150

B) 130

18.If each case sells for $5 more than the cost of the materials used in producing it, then the value marginal product for the 2nd worker is A) $150 B) $310 C) $315 D) $750 E) $775

D) $750

19.If each case sells for $7 more than the cost of the materials used in producing it, then the value marginal product for the 3rd worker is A) $450 B) $980 C) $ I 050 D) $1085 E) $1 120

B) $980

20.lf each case sells for $3 more than the cost of the materials used in producing it, then the most Sam would pay the 5th worker is A) $330 B) $360 C) $390 D) $700 E) $70

B) $360

1 The percentage change in quantity demanded that results from the percentage change in price is known as the A) price elasticity of supply D) cross-price elasticity of demand B) price elasticity of demand E) cross-price elasticity of supply C) income elasticity of demand

B) price elasticity of demand

2. If Leslie can produce two pairs of pants in an hour while Eva can make one pair an hour, then it must be the case that A) Leslie has a comparative advantage. B) Eva has an absolute advantage. C) Leslie has an absolute advantage. D) Eva has a comparative advantage. E) Leslie has both comparative and absolute advantage

C) Leslie has an absolute advantage.

3. As the price of gasoline increases, the quantity demanded of gasoline decreases. This is an application of A) the law of supply B) environmental economics C) the law of demand D) how government organizations deal with pollution E) needs versus wants

C) the law of demand

4. Choosing to study for an exam until the extra benefit (improved score) equals the extra cost (mental fatigue) is A) not rational. B) an application of the cost-benefit principle. C) an application of the scarcity principle. D) the relevant oppo11unity cost. E) less desirable than studying for the entire evening.

B) an application of the cost-benefit principle.

5. Market power measures the film's ability to A) under cut its competitors. B) resist union wage demands. C) raise its price without losing all of its sales. D) influence the price its competitors charge. E) force consumers to pay higher prices.

C) raise its price without losing all of its sales.

6. Which of the following circumstances does not involve game theory? A) A local gas station owner wondering how his competition across the street will react to his decision to lower prices. B) Negotiating a salary when two firms have made offers. C) Deciding whether to have an extramarital affair. D) Firm behavior in a perfectly competitive market. E) Playing poker.

D) Firm behavior in a perfectly competitive market.

10 Which of the following strategy(s) could be used in collecting infonnation about a good or service I. Visit stores and ask a salesperson about the product or service. II. Ask friends and family members for opinions. III. Read Consumer Reports. A) I and II B) II and III C) I and III D) III E) I, II, and III.

E) I, II, and III.

11 The quantity demanded of Honda Civics went down as the price increased, and the consumers that preferred Civics started to buy Toyota Corollas. This is because of A) income effect B) substitution effect C) Japanese cars last longer D) American cars cost more E) Demand for Honda Civic shift to the left

B) substitution effect

12 Which one of the following determinants will cause movements along the supply curve of good X? A) the price of good X. B) the price of labor used in the production of good X. C) the amount of technology used in the production good X. D) the cost of the plant used to produce good X. E) the price of fuel used in the production of good X.

A) the price of good X.

13 During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, third one was OK, but as soon as you ate the 4th one you became ill and lost the contest. Beyond the 3rd pie your total utility A) increases B) decreases C) stays the same D) 1s zero E) no way to predict

B) decreases

14 The economic surplus of a particular action is A) the value of the action. B) the cost of the action. C) the difference between the benefit and the cost of the action. D) the average of the benefits and costs. E) the ratio of the benefits to the costs

C) the difference between the benefit and the cost of the action.

15 A profit maximizing perfectly competitive finn must decide A) only on what price to charge, taking output as fixed. B) both what price to charge and how much to produce. C) only on how much to produce, taking price of the good as fixed. D) only on which industry to join, taking price and output as fixed. E) only on how much revenue it wishes to collect.

B) both what price to charge and how much to produce.

16 A variable factor of production A) is fixed in the long run but variable in the short run. B) plays no role in the law of diminishing marginal returns. C) is variable in both the short run and the long run. D) is irrelevant to profit maximization decisions. E) is variable only in the short run.

C) is variable in both the short run and the long run.

17 The reason an efficient market outcome may not be considered a "good" outcome is A) demand may not include all the benefits of consumption. B) incomes of consumers are taken as given. C) supply may not include all the costs of production. D) the market is less than perfectly competitive. E) consumers and producers lack infonnation.

C) supply may not include all the costs of production.

18 Deadweight loss is A) present in all markets. B) the difference between consumer surplus and producer surplus. C) positive in markets where equilibrium is distorted by price controls or taxes. D) always larger than consumer surplus. E) always smaller than producer surplus

C) positive in markets where equilibrium is distorted by price controls or taxes.

19 Constant returns to scale occur when a doubling of all inputs A) doubles the price of outputs. B) more than doubles output. C) less than doubles the price of the inputs. D) exactly doubles output. E) less than doubles output.

D) exactly doubles output.

20 Game theory is important in understanding A) how perfectly competitive firms behave. D) interdependent outcomes. B) production decisions by firms. E) the behavior of a pure monopolist. C) consumer demand

D) interdependent outcomes.

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