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WorksheetsMicroeconomy
Total questions: 73
Worksheet time: 37mins
Economics may best be defined as:
the interaction between macro and micro considerations.
the study of the behaviour of people and institutions in the production, distribution, and consumption of scarce goods.
the empirical testing of value judgements through the use of induction and deduction.
: the use of policy to refute facts and hypotheses.
The study of economics is primarily concerned with:
: keeping private businesses from losing money
demonstrating that capitalistic economies are superior to socialistic economies.
choices that are made in seeking to use scarce resources efficiently.
determining the most equitable distribution of society's output.
The term ‘ceteris paribus’ means:
if event A precedes event B, A has caused B.
economics deals with facts, not values.
other things being equal.
: prosperity inevitably follows recession.
The concept of economic efficiency is primarily concerned with:
the limited wants and unlimited resources dilemma.
considerations of equity in the distribution of wealth.
obtaining the maximum output from available resources.
: the conservation of irreplaceable natural resources.
The fundamental problem of economics is:
to establish an equitable system of personal and business taxation.
to establish a democratic political framework for the provision of social goods and services.
the establishment of prices that accurately reflect the relative scarcities of products and resources.
the scarcity of productive resources relative to material wants.
The scarcity problem:
persists only because countries have failed to achieve continuous full employment
persists because material wants exceed available productive resources.
has been solved in all industrialised nations.
has been eliminated in affluent societies such as Australia.
The idea of ‘allocative efficiency’ refers to:
: the use of the least-cost method of production.
the production of the product-mix most wanted by society.
the full employment of all available resources.
production, at some point, inside of the production possibilities curve.
‘Productive efficiency’ refers to:
: the use of the least-cost method of production.
the production of the product-mix most wanted by society.
the full employment of all available resources.
production, at some point, inside of the production possibilities curve.
Which of the following is not one of the three basic economics issues?
Which products should be in short supply and which in excess supply?
For whom should the total output be produced?
How should production be organised?
What goods and services should be produced?
A market:
: reflects upsloping demand and downsloping supply curves
entails the exchange of goods, but not services.
is an institution that brings together buyers and sellers.
: always entails face-to-face contact between buyer and seller.
The law of demand states that:
price and quantity demanded are inversely related.
the larger the number of buyers in a market, the lower product price.
price and quantity demanded are directly related.
consumers will buy more of a given product at high prices than they will at low prices.
Represented graphically, the market demand curve is:
steeper than any individual demand curve that comprises it.
greater than the sum of the individual demand curves.
the horizontal sum of individual demand curves.
the vertical sum of individual demand curves.
Which of the following will not cause the demand for product K to change?
A change in the price of close-substitute product J.
An increase in consumer incomes.
A change in the price of K.
A change in consumer tastes.
If consumer incomes increase, the demand for product X:
will necessarily remain unchanged
may shift either to the right or left.
will necessarily shift to the right
will necessarily shift to the left.
The law of supply indicates that:
producers will offer more of a product at high prices than they will at low prices.
the product supply curve is downsloping.
consumers will purchase less of a good at high prices than they will at low prices
producers will offer more of a product at low prices than they will at high prices.
An improvement in production technology will:
tend to increase equilibrium price.
shift the supply curve to the left.
shift the supply curve to the right.
shift the demand curve to the left.
the following statements is incorrect?
: If demand increases and supply decreases, equilibrium price will rise
If supply increases and demand decreases, equilibrium price will fall.
If demand decreases and supply increases, equilibrium price will rise.
If supply declines and demand remains constant, equilibrium price will rise.
If there is a shortage of product X, we can predict that:
fewer resources will be allocated to the production of this good.
: the price of the product will rise.
the price of the product will decline
the supply curve will shift to the left and the demand curve to the right, thereby eliminating the shortage
The price elasticity of demand indicates:
buyer responsiveness to price changes
the extent to which a demand curve shifts when incomes change.
the slope of the demand curve.
how far business executives can stretch their fixed costs.
The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. From this we can conclude that the demand for X in this price range:
has declined.
is of unit elasticity
: is inelastic
is elastic.
If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:
: increase the quantity demanded by 2.5%.
decrease the quantity demanded by 2.5%.
increase the quantity demanded by 25%.
: do none of the above.
Suppose that, as the price of Y falls from $2.00 to $1.90, the demanded quantity of Y increases from 110 to 118. It can be concluded that the price elasticity of demand is:
4.00
2.09
1.44
3.94
In which of the following instances will total revenue decline?
Price rises and supply is elastic.
Price falls and demand is elastic.
Price rises and supply is inelastic.
Price rises and demand is elastic.
Price elasticity of demand is generally:
greater in the long run than in the short run.
greater in the short run than in the long run.
the same in both the short run and the long run
greater for ‘necessities’ than it is for ‘luxuries’.
A product has utility if it:
takes more and more resources to produce successive units of it.
violates the law of demand.
satisfies consumer wants.
is useful.
The ‘law of diminishing marginal utility’ states that:
total utility is maximised when consumers obtain the same amount of utility, per unit, of each product consumed.
beyond some point, additional units of a given product will yield less and less extra satisfaction to a consumer.
the price must be lowered, in order to induce firms to supply more of a product
: it will take larger and larger amounts of resources, beyond some point, to produce successive units of a product.
The first meat pie yields, for Craig, 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three meat pies is 38 units of utility. The marginal utility of the third meat pie:
: is 26 units of utility
is 6 units of utility.
is 8 units of utility
cannot be determined from the information given
Total utility may be determined by:
multiplying the marginal utility of the last unit consumed by the number of units consumed.
summing the marginal utilities of each unit consumed
multiplying the marginal utility of the last unit consumed by product price
multiplying the marginal utility of the first unit consumed by the number of units consumed.
A consumer's demand curve for a product is downsloping because:
total utility falls below marginal utility as more of a product is consumed.
: marginal utility diminishes as more of a product is consumed.
time becomes less valuable as more of a product is consumed.
the income and substitution effects precisely offset each other.
Suppose that MUx/Px for good X exceeds MUy/Py for good Y. To maximise utility, the consumer who is exhausting his/her money income, should buy:
less of X only if its price rises.
more of Y only if its price rises.
more of Y and less of X.
more of X and less of Y.
Refer to the above information. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximise his/her utility by purchasing:
: 2 units of J and 7 units of K.
5 units of J and 5 units of K.
4 units of J and 5 units of K.
6 units of J and 3 units of K.
A consumer is maximising his/her utility with a given money income when:
the total utility derived from each product consumed is the same
MUa/Pa = MUb/Pb = MUc/Pc = … = MUn/Pn
MUa = MUb = MUc = … = MUn
Pa = Pb = Pc = … = Pn
The theory of consumer behaviour assumes:
that consumers behave rationally in that they seek to maximise their satisfactions.
that the consumer has a limited income.
: that consumers know how much marginal utility they obtain from successive units of various products
all of the above.
If marginal utility is diminishing, total utility must also be declining.
True
False
: If PA = 5 and MUA = 10, while PB = 1 and MUB = 3, the consumer should buy more of good B and less of good A.
True
False
Economic profits are calculated by subtracting
explicit costs from total revenue.
implicit costs from total revenue
implicit costs from normal profits.
explicit and implicit costs from total revenue.
To economists, the main difference between ‘the short run’ and ‘the long run’ is that:
: the law of diminishing returns applies in the long run, but not in the short run.
in the long run, all resources are variable, while in the short run, at least one resource is fixed.
fixed costs are more important to decision making in the long run than they are in the short run
in the short run all resources are fixed, while in the long run, all resources are variable
The law of diminishing returns indicates that:
as extra units of a variable resource are added to a fixed resource, the extra or marginal product will decline beyond some point
because of economies and diseconomies of scale, a competitive firm's long-run average cost curve will be U-shaped
: the demand for goods produced by purely competitive industries is downsloping.
beyond some point, the extra utility derived from additional units of a product will yield for the consumer smaller and smaller extra amounts of satisfaction.
The following is output data for a firm. Assume that the amounts of all non-labour resources are fixed. Number of Units of workers output 0 0/ 1 40/ 2 90 3 126/ 4 150/ 5 165/ 6 180 Refer to the above information. Diminishing returns become evident with the addition of:
: the fourth worker.
the third worker.
the second worker.
the first worker.
Marginal cost may be defined as the:
rate of change in total fixed cost which results from producing one more unit of output
change in total cost which results from producing one more unit of output.
change in average variable cost which results from producing one more unit of output.
change in average total cost which results from producing one more unit of output.
The vertical distance between ATC and AVC reflects:
the average fixed cost at each level of output.
marginal cost at each level of output
the presence of economies of scale.
: implicit costs.
Assume that in the short run, a firm which is producing 100 units of output has average total costs of $200 and average variable costs of $150. The firm's total fixed costs are:
$5 000.
: $500.
$0.50
$50.
The following is the total output and cost data for a firm. Output Total Cost($) 0 24 /1 33/ 3 41/ 3 48/ 4 54 /5 61/ 6 69 Refer to the above cost data. The marginal cost of producing the sixth unit of output:
: is $24.
is $16.
is $8.
cannot be determined from the information given
The demand schedule, or curve, confronted by the individual purely competitive firm is:
: relatively elastic, that is, the elasticity coefficient is greater than unity.
perfectly elastic
relatively inelastic, that is, the elasticity coefficient is less than unity.
: perfectly inelastic.
Assume a graph where dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, total revenue:
graphs as a straight, upsloping line.
: is a straight line, parallel to the vertical axis.
is a straight line, parallel to the horizontal axis.D
graphs as a straight, downsloping line.
) If a firm, in a purely competitive industry, is confronted with an equilibrium price of $5, its marginal revenue:
may be either greater or less than $5.
will also be $5.
will be less than $5.
will be greater than $5.
A purely monopolistic industry:
is characterised by significant entry barriers
is characterised by a downward sloping demand curve.
produces a product or service for which there are no close substitutes.
is characterised by all of the above.
What do economies of scale, the ownership of essential raw materials, and patents have in common?
: They must all be present before price discrimination can be practised.
They are all ‘barriers to entry’.
They all help explain why a monopolist's demand and marginal revenue curves coincide.
They all help explain why the long-run average cost curve is U-shaped.
The monopolistic firm's demand curve:
: is less elastic than a purely competitive firm's demand curve
is perfectly elastic.
coincides with its marginal revenue curve.
is perfectly inelastic.
For an imperfectly competitive firm:
total revenue is a straight, upsloping line, because a firm's sales are independent of product price.
the marginal revenue curve will lie above the demand curve, because any reduction in price applies to all units sold
the marginal revenue curve will lie below the demand curve, because any reduction in price applies to all units sold.
the marginal revenue curve will lie below the demand curve, because any reduction in price applies only to the extra unit sold.
Price exceeds marginal revenue for the pure monopolist because:
the average and marginal revenue curves are identical
the law of diminishing returns is inapplicable.
the demand curve is downsloping.
the monopolist produces a smaller output than would a purely competitive firm.
When total revenue is increasing:
marginal revenue may be either positive or negative.
the demand curve is relatively inelastic.
marginal revenue is positive.
marginal revenue is negative
Under monopolistic competition, entry to the industry is:
completely free of barriers.
more difficult than under pure competition, but not nearly as difficult as under pure monopoly.
more difficult than under pure monopoly.
blocked.
Which of the following is not characteristic of monopolistic competition?
Easy entry to the industry
Relatively large numbers of sellers.
Product differentiation.
Production at minimum ATC in the long run.
If the number of firms in a monopolistically competitive industry increases, and the degree of product differentiation diminishes:
the likelihood of realising economic profits in the long run would be enhanced.
: individual firms would now be operating at outputs where their average total costs would be higher
the industry would more closely approximate pure competition.
the likelihood of collusive pricing would increase.
The monopolistic competition model predicts that:
allocative efficiency will be achieved.
productive efficiency will be achieved.
firms will engage in non-price competition
firms will realise economic profits in the long run.
A monopolistically competitive firm has a:
highly elastic demand curve
highly inelastic demand curve.
perfectly inelastic demand curve.
perfectly elastic demand curve.
The monopolistically competitive seller's demand curve will tend to become more elastic, the:
more significant the barriers to entering the industry.
greater the degree of product differentiation.
larger the number of competitors.
smaller the number of competitors.
: A monopolistically competitive firm's marginal revenue curve:
is downsloping and coincides with the demand curve.
coincides with the demand curve and is parallel to the horizontal axis
: is downsloping and lies below the demand curve.
does not exist because the firm is a ‘price maker’.
Monopolistically competitive firms:
: realise normal profits in the short run, but losses in the long run
tend to incur persistent losses in both the short run and long run.
may realise either profits or losses in the short run, but tend to realise a normal profit in the long run.
persistently realise economic profits in both the short run and long run.
The monopolistically competitive seller maximises profits by producing at the point where:
: total revenue is at a maximum.
average costs are at a minimum
marginal revenue equals marginal cost.
price equals marginal revenue.
In the long run, a monopolistically competitive firm's economic profits:
will be maximised where price equals average cost.
may be positive, zero, or negative.
are always positive.
tend towards zero.
Other things being the same, if more firms enter a monopolistically competitive industry, we would expect:
: the demand curves facing existing firms to shift to the right.
the demand curves facing existing firms to shift to the left.
: the demand curves facing existing firms to become less elastic.
that losses would necessarily occur.
An important similarity between a monopolistically competitive firm and a purely competitive firm is that:
both face perfectly elastic demand schedules
economic profits tend toward zero for both.
: both realise productive efficiency.
both realise allocative efficiency.
In equilibrium, a monopolistically competitive producer achieves:
: neither ‘productive efficiency’ nor ‘allocative efficiency’.
both ‘productive efficiency’ and ‘allocative efficiency’
‘productive efficiency’, but not ‘allocative efficiency’.
‘allocative efficiency’, but not ‘productive efficiency’.
Non-price competition refers to:
competition between products of different industries, e.g. competition between aluminium and steel in the manufacture of automobile parts.
price increases by a firm, which are ignored by its rivals.
advertising, product promotion, and changes in the real or perceived characteristics of a product.
reductions in production costs which are not reflected in price reductions.
Oligopolistic industries are characterised by:
a few dominant firms and substantial entry barriers.
: a few dominant firms and no barriers to entry.
a large number of firms and low entry barriers.
a few dominant firms and low entry barriers.
The mutual interdependence which characterises oligopoly arises because:
A: the products of various firms are homogeneous.
: the products of various firms are differentiated.
a small number of firms produce a large proportion of industry output.
the demand curves of firms are kinked at the prevailing price.
Barriers to entry in oligopolistic industries may consist of:
economies of scale.
patents.
ownership of essential resources.
all of the above.
Economists use game theory to analyse the choices faced by the managers of oligopolistic firms primarily because:
the number of firms is too large to make collusion understandable.
the price and output decisions of any one firm depend upon the reactions of its rivals.
output may be either homogeneous or differentiated.
neither allocative nor productive efficiency is achieved.
Concentration ratios measure the:
geographic location of the largest corporations in each industry
degree to which product price exceeds marginal cost in various industries
percentage of total sales accounted for by a given number of the largest firms in the industry
number of firms in an industry.
Game theory can be used to demonstrate:
that oligopolistic firms are mutually interdependent
that independent pricing will lead to low-price policies.
that oligopolists can increase their profits through collusion.
all of the above.
The kinked demand curve model helps to explain price rigidity because:
there is a gap in the marginal revenue curve, within which changes in marginal cost will not affect output or price
demand is inelastic above and elastic below the ‘going’ price.
the model assumes firms are engaging in some form of collusion.
the associated marginal revenue curve is perfectly elastic at the ‘going’ price.
