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WorksheetsFinal Exam Review: Microeconomics
Total questions: 100
Worksheet time: 3hrs 20mins
The measured inequality of annual income ________ the actual inequality of lifetime income because ________.
understates; people have different levels of education
overstates; different households are at different stages in the life cycle
overstates; different households have different amounts of wealth
understates; people live in different geographic areas
overstates; the Lorenz curves differ for income and wealth
Moral hazard is
an action taken outside a market that conveys information that can be used by that market.
the tendency for people to enter into agreements in which they can use their private
information to their own advantage and to the disadvantage of the less informed party.
when one of the parties to an agreement has an incentive after the agreement is made to act
in a manner that brings additional benefits to himself or herself at the expense of the other
party.
a situation in which only bad quality items are bought and sold.
absent after a person who dislikes risk buys insurance against the risk.
An item that is purchased to increase businesses' productive factors is
an export.
a government good.
a consumption good.
a productive good.
a capital good.
A demand schedule shows
the quantities that people plan to buy at each different price when all other influences on
buying plans remain the same.
the quantities that people would plan to buy if they could afford them at each different price
when all other influences on buying plans remain the same
the quantities that people plan to buy in all possible circumstances.
the quantities that people plan to buy at each different income when all other influences on
buying plans remain the same.
the quantities that people plan to buy at each different price as long as producers are willing
to supply that quantity
The American Dairy Association starts a highly successful advertising campaign that makes most people want to drink more milk. As
a result,
the price of milk falls to encourage people to drink more milk
the quantity demanded of milk increases.
the demand for milk is not affected.
the demand for milk increases.
the demand for milk decreases because the price of milk rises.
Although Jack and Vanessa were equally qualified, Jack was promoted to manager instead of Vanessa because the president of the
company thought that the other employees would not respect a female manager. The resource, the management position, was allocated
in what manner?
Personal characteristics
Contest
Lottery
Sharing equally
Command
In an insurance market, moral hazard exists chiefly because of
adverse selection.
private information.
public information
economies of scale.
diseconomies of scale
Suppose Mongo runs a glue factory in Knuckle, North Dakota. Mongo wants to fire his cousin Beevo for not working very hard at making
glue. If firing Beevo would save Mongo $6.11 per hour in wages and the value of Beevo's marginal product equals $7.29 per hour, to
maximize his profit, Mongo should
keep Beevo employed.
fire Beevo.
add another worker, Teevo, Beevo's sister, whose value of the marginal product would
be $4.83 per hour and whose wage would be $6.11 per hour.
increase the wage he pays Beevo to $7.29 per hour.
There is not enough information given to determine what Mongo should do.
The demand for insulin is quite inelastic. The demand for Pepsi is quite elastic. Suppose the elasticity of supply for insulin is the same as
the elasticity of supply for Pepsi. If a $0.20 tax was imposed on each of these goods (holding everything else constant), which consumers
would pay more of the tax?
the Pepsi consumers
the insulin consumers
There would be no difference in the amount of tax paid by the consumers.
More information is needed to determine which consumers pay more of the tax.
The premise of the question is wrong because the elasticity of demand and the incidence of a
tax are not related
What would be an example of capital good?
The local driver's license office purchases a new digital camera and printer.
Apple sells computers to Japan.
Rhianna gets a haircut
Jeanette buys a new dress.
Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
Poverty for a household is defined as the state of
having a total income that is below the median total income
having an income that can be spent on food, shelter, and clothing that is below the median
for food, shelter, and clothing
having an income that is below average.
income below what is thought fair
income below what is thought necessary for food, shelter, and clothing
Suppose the equilibrium rent in Denver is $1,050. A rent ceiling of $755 per month leads to
a surplus of apartments in Denver.
a shortage of apartments in Denver.
no change in the Denver apartment market.
fair prices in the Denver market
compared to the situation at the equilibrium rent, a decrease in the quantity of apartments
demanded and an increase in the quantity of apartments supplied.
Which of the following is true?
MC = Marginal external benefit + MSC
MC = Marginal - external cost MSC.
MSC = MC + Marginal external cost
MSC = Marginal external cost -marginal external benefit
MSC = Marginal external cost + marginal external benefit.
Canned milk was only rationed to babies and small children during World War 2. This rationing was an example of allocation by
personal characteristics
sharing equally
force
market price
first come, first served
Which barrier to entry is an exclusive right granted to the author or composer of a literary, musical, dramatic or artistic work?
government license
patent
natural barrier
copyright
public franchise
Scarcity forces people to
choose among available alternatives
cheat and steal.
consume as much as they can as quickly as they can
be unwilling to help others
live at a low standard of living
If the price of the good measured on the x axis becomes relatively cheaper, the budget line will
become steeper
shift rightward and not change its slope
become flatter
become horizontal
become vertical
An example of a common resource is a
tuna in the ocean.
bridge.
national defense
non crowded movie theater
All of the above answers are correct
The four firm concentration ratio is the percentage of ________ accounted for by the four largest firms in an industry.
supply
marginal cost
total cost
total revenue
profit
In a production possibilities frontier diagram, the attainable production points are shown as
only the points beyond the production possibilities frontier.
the points inside and the points on the production possibilities frontier.
only the points on the production possibilities frontier.
only the points inside the production possibilities frontier.
any of the production points
A firm in perfect competition is a price taker because
many other firms produce identical products.
it's demand curve is vertical at the profit maximizing quantity.
there are no good substitutes for its good.
its demand curves are downward sloping.
it is very large.
Which of the following equations is correct?
MSC = MC x marginal external cost
MC = marginal -external cost MSC
MSC = MC + marginal external cost
MSC = MC ÷ marginal external cost
MC = MSC + marginal external cost
Allocating resources by the order of someone in authority is a ________ allocation method.
first-come, first-served
majority rule
market price
command
contest
A firm's total revenue minus its total opportunity cost is called its
accounting profit.
abnormal profit.
economic profit.
normal profit.
entrepreneur's profit.
A rent ceiling set below the equilibrium rent
ensures that landlords earn a reasonable rate of profit on apartments.
results in all renters and potential renters being better off.
eliminates discrimination by landlords.
ensures the availability of enough low rent apartments in a city.
creates a situation in which the quantity demanded of housing is greater than quantity
supplied.
The marginal social cost of producing a good or service is the
same as marginal external cost.
cost of producing an additional unit borne by people other than the producer.
sum of the marginal private cost and the marginal external cost minus the marginal social
benefit.
cost of producing an additional unit borne by the producer.
sum of the marginal private cost and the marginal external cost.
A mother notices that when she divides brownies equally between her two children and gives each child her share on a separate plate,
the brownies last a long time. But when she gives her children a plate to share, the brownies are gone pretty quickly. The mother
concludes from this that brownies given on a single plate are
excludable and rival.
nonexcludable and rival.
nonexcludable and nonrival.
excludable and nonrival.
excludable but they might either be rival or nonrival.
In the insurance market, private information
creates adverse selection but eliminates moral hazard.
creates both moral hazard and adverse selection.
eliminates both moral hazard and adverse selection.
creates moral hazard but eliminates adverse selection.
means that screening is unnecessary.
A housing shortage results when
a rent floor below the equilibrium rent is imposed.
a rent ceiling below the equilibrium rent is imposed.
a rent ceiling above the equilibrium rent is imposed.
a tax is imposed on housing.
rents rise.
If a landlord will rent an apartment only to married couples, the landlord is using a ________ allocation method.
contest
majority rule
command
market price
personal characteristics
The United States imports t shirts because
foreign economies have an absolute advantage in their production.
the United States has a lower opportunity cost of production.
foreign nations have a lower opportunity cost of production.
the United States must import goods and services from other countries so that they can
develop economically.
it is a dangerous job to produce them.
In the United States in 2010, a family of four was considered to be living below the poverty line only if its household income was less than
approximately
$11,900 per year.
$400 per year.
$4,000 per year.
$22,800 per year.
$35,800 per year.
If the United States starts to import a good that had previously been produced in the United States, the market price of the good in the
United States
rises.
remains constant.
falls.
either remains constant or rises, depending on how whether the supply of the good stays the
same or increases.
There is not enough information to answer the question because we need to know if the
market price in the United States had been above or below the world market price before
trade began.
Production efficiency is represented by ________ a production possibilities frontier.
all points outside
all points on
a movement along
all points inside
only one point on
Jennifer owns a pig farm near Salina, Kansas. Last year she earned $39,000 in total revenue while incurring $38,000 in explicit costs.
She could have earned $27,000 as a teacher in Salina. These are all her revenue and costs. Therefore Jennifer earned an
accounting profit of $1,000 but incurred an economic loss of $26,000.
economic profit of $1,000.
accounting profit of $1,000 but incurred an economic loss of $38,000.
accounting profit of $1,000 but incurred an economic loss of $65,000.
None of the above answers is correct.
A profit-maximizing firm hires labor up to the point where
marginal revenue equals the wage rate.
the wage rate equals the value of marginal product.
the wage rate multiplied by the quantity of labor equals the marginal product.
price of the product equals the wage rate.
price of the product equals the value of marginal product.
The price of cotton clothing falls. As a result,
the demand for cotton clothing decreases.
the demand for cotton clothing increases.
the quantity demanded of cotton clothing decreases.
both the demand for cotton clothing increases and the quantity demand of cotton clothing
increases.
the quantity demanded of cotton clothing increases.
The rule for employing a profit maximizing amount of labor is to continue to hire additional workers until the additional worker's value of
marginal product is
less than the wage rate.
less than the price of the product.
greater than 1.
equal to the wage rate.
equal to the price of the product.
Which of the following four firm concentration ratios would be the best indication of a perfectly competitive industry?
31 percent
50 percent
2 percent
78 percent
100 percent
In the production possibilities frontier model, an unattainable point lies
only on the production possibilities frontier itself.
only inside the production possibilities frontier.
only outside the production possibilities frontier.
both on and outside the production possibilities frontier.
There are no unattainable points in the production possibilities model.
A major earthquake occurs in the central part of the United States. What impact would this have on the nation's production possibilities
frontier and why?
A tradeoff would occur to replace the resources and goods destroyed.
Nothing would happen because the nation would still have the same capabilities.
It would not shift because people would get to work to replace any capital that was
destroyed.
It would shift outward because unemployment would be reduced.
It would shift inward because some of the nation's resources, such as capital and labor,
would be destroyed.
For a perfectly competitive firm, the price of its good is equal to the firm's marginal revenue because
price and marginal revenue are the same economic concepts.
there are only a small number of firms in the market.
individual perfectly competitive firms cannot influence the market price by changing their
output.
the firm's total revenue cannot be changed by anything the firms can do.
information about price changes is hard to come by for small sellers.
In the figure above, ________ firms will share the market and the ________.
2; lowest possible price is $15
2; efficient scale is 40 units
2; efficient scale is 80 units
2; lowest possible price is $20
3; efficient scale is 40 units
A rent ceiling set below the equilibrium rent decreases the quantity of housing supplied because
demand for housing will increase.
the supply of housing increases.
landlords of previously barely profitable apartments refuse to rent them.
the supply curve of housing immediately shifts leftward.
fewer tenants will search for housing.
The price charged by a perfectly competitive firm is
higher the more the firm produces.
different than the price charged by competing firms.
the same as the market price.
indeterminate.
lower the more the firm produces.
If a nation can produce a good or service at the lowest opportunity cost, then it
can sell the product at a lower price than other nations.
might export or import the good, depending on whether or not it has a comparative
advantage in the production of the good.
is best for the nation to not trade the good internationally.
does not want to export the good because the low cost means it makes only a low profit.
will definitely import the good because it can beat other countries' prices.
Items bought by businesses to help produce other goods and services are called
exports of goods and services.
consumption goods and services.
government goods and services.
capital goods.
productive goods.
Which of the following is a legal barrier to entry?
i) public franchise
ii) government license
iii) patent
ii and iii
i and ii
iii only
i, ii, and iii
i and iii
Which of the following is true regarding demand?
i. Demand is the relationship between quantity demanded and the price of a good when all other influences on buying plans remain the
same.
ii. Demand refers to one quantity at one time.
iii. "Demand" and " quantity demanded" are the same thing.
both ii and iii.
iii only.
i only.
ii only.
both i and ii
A country exports the goods
in which it has a comparative disadvantage.
for which its domestic prices are very high compared to the world prices.
that the economy can produce the most of.
that it cannot sell domestically.
that the economy can produce at relatively lowest opportunity cost.
Marginal social cost is equal to
the sum of marginal private cost and the marginal external cost.
the amount people who buy a product pay for another unit.
the average of marginal private cost and the marginal external cost.
whatever producers have to pay to produce output.
None of the above answers is correct.
A demand schedule
is a list of the quantities demanded at each different price when all other influences on
buying plans remain the same.
shows how the demand changes when the supply changes.
is a graph showing a relationship between the quantity demanded and the price of a good.
shows that demand is on schedule.
shows the quantity demanded at one price.
One way to identify oligopoly is to
use the Herfindahl-Hirschman Index (HHI).
determine whether the firm's ATC exceeds price.
use the Efficiency test.
determine the market's maximum price.
determine the market's minimum price.
Suppose that the elasticity of demand for insulin is 0.1, the elasticity of demand for oranges is 1.2, and the elasticity of supply for insulin
and oranges is 0.4. If the government imposes a 10 percent tax on both insulin and oranges, the percentage decrease in the quantity of
oranges is ________ the percentage decrease in the quantity of insulin.
not comparable to
equals to
larger than
smaller than
More information is needed to determine how the decrease in the quantity of oranges
compares to the decrease in the quantity of insulin.
The figure shows the market for the tourist trolley service in a resort
town. These trolley services provide transportation to tourists to
alleviate parking shortages and traffic congestion. The figure shows
a natural duopoly where the efficient
scale is 100 riders per day.
a natural duopoly where the efficient
scale is 200 riders per day.
a natural monopoly where the efficient
scale is 100 riders per day.
an oligopoly where 3 competing firms
achieve minimum cost.
an oligopoly where 3 competing firms
create excess capacity.
April quit her job as an accountant at Ernst and Young, where she was paid $45,000 per year. She started her own landscaping business.
She rents machines and tools for $50,000 and pays $10,000 as wages to her help. These are her only costs. April earned total revenue
of $100,000.
(A) She has an economic loss.
(B) Her accountant calculates her profit as $40,000.
(C) Her explicit cost is $105,000.
Both answers A and B are correct.
Both answers A and C are correct.
Which of the following is NOT considered a consumption good?
marriage counseling services
a UPS truck
Nike swimming trunks
a Subway sandwich
a U.S. government bond
If the percentage change in the quantity demanded is not zero but is less than the percentage change in the price, demand is
perfectly inelastic.
perfectly elastic.
unit elastic.
elastic.
inelastic.
The figure to the right shows that ________ occurs at ________
units and that ________ firms should share the market.
the highest level of demand; 45; 2
the efficient scale; 30; 3
the lowest marginal cost; 30; 3
the efficient scale; 45; 2
an economic profit; 45; 2
If the slope of the budget line changes, there must have been
a change in the consumer's preferences.
an increase in the consumer's income.
a change in the price of at least one good.
a change in the price of both goods.
None of these could cause a change in the slope of the budget line.
When use of a good decreases the quantity available for someone else, the good is
excludable.
a public good.
nonexcludable.
rival.
nonrival.
Which of the following situations describing a resource allocation method most resembles the market price method?
Lattes are sold at Starbucks
Jose works at Intel. His manager tells him what work needs to be completed each month.
Food from the Weld County Food Bank is distributed to families in need.
Seventy percent of Austin's chess club wanted to purchase new chess sets and thirty
percent did not. The club purchased the sets.
Matt's mother had the rule that whoever cuts the cake chooses their slice last.
Which of the following statements best describes the study of economics? Economics studies how
firms make profits.
we make choices in the face of scarcity.
to create incentives so that scarcity does not exist.
businesses reach decisions.
to organize production so that scarcity does not occur.
When hiring labor, to maximize profit a firm hires labor
until the value of the marginal product equals the marginal revenue from hiring the worker.
until the value of the marginal product is greater than the wage rate.
until the value of the marginal product equals the wage rate.
if the workers are not unionized.
regardless of cost, because the firm definitely needs labor.
The country with a comparative advantage in the production of a good has a
linear production possibilities frontier.
higher opportunity cost of production.
horizontal production possibilities frontier.
vertical production possibilities frontier.
lower opportunity cost of production.
Suppose the Miami Dolphins are considering adding another backup quarterback to their roster. If the salary the Dolphins would have to
pay equals $10,000,000 and the value of marginal product of the new quarterback equals $12,000,000, to maximize their profit the
Dolphins should
add the new quarterback.
not add the new quarterback and, in fact, get rid of at least one other backup quarterback.
add two new quarterbacks.
not add the new quarterback.
Not enough information is given to determine if the Dolphins should hire the quarterback.
Suppose the demand for peaches sold from one roadside stand in Georgia is perfectly elastic. As a result, a 7 percent increase in the
price charged by the owner of this stand leads to
no change in the quantity demanded at this stand.
zero peaches sold by this stand.
a 7 percent decrease in the quantity demanded at this stand.
a 7 percent decrease in demand at this stand.
a virtually infinite increase in the quantity demanded at this stand.
The figure shows the market for tires. According to the figure, the
price elasticity of demand is ________ the price elasticity of supply.
less than
equal to
greater than
not comparable to
More information is needed to
determine if the price elasticity of
demand is greater than, equal to,
less than, or comparable to the price
elasticity of supply.
When the percentage change in the quantity demanded is less than the percentage change in price, then demand is
inelastic.
elastic.
unit elastic.
undefined.
irrelevant.
Economic profit equals total revenue minus total
explicit costs.
opportunity costs.
entrepreneur's costs.
accounting costs.
implicit costs.
In the insurance market, moral hazard and adverse selection are the result of
private information.
treachery.
government intervention.
poorly functioning markets.
a separating equilibrium.
Which of the following is true?
Profit as calculated by accountants is always smaller than economic profit.
Profit as calculated by accountants and economic profit are not necessarily equal.
The Internal Revenue Service taxes the firm's economic profit but not its normal profit.
The Internal Revenue Service taxes the firm's normal profit but not its economic profit.
Economic profit ignores implicit costs.
A monopoly will arise if
two out of three of a town's pizzerias go out of business and only one new pizzeria opens.
people decide they like pizza more than before so some pizzeria's gain new customers.
Papa Joe's Pizza becomes the largest pizza producer in town and Nick's Pizza stays small
in size.
several big pizza chains force several small pizzerias out of business.
the town council passes a law granting Nick's Pizza the exclusive right to operate in that
town.
When all of the available factors of production are being efficiently employed, the
opportunity cost of changing production is infinite.
economy is producing at a point beyond its PPF.
economy is producing at a point on its PPF.
PPF disappears.
economy is producing at a point within its PPF.
In a housing market with no rent ceilings, the equilibrium rent is that for which the quantity of apartments demanded
is greater than the quantity supplied.
equals the quantity supplied.
is less than the quantity supplied.
might be greater than, equal to, or less than the quantity supplied depending on whether the
supply curve is upward sloping, horizontal, or vertical.
None of the above answers is correct because without rent ceilings there is no equilibrium
rent.
In the United States in 2017, the Census Bureau determined that approximately ________ million Americans lived in households that had
incomes below the poverty line.
11
84
22
40
112
If the price elasticity of demand for moose hunting lessons is 4.23, then the demand for moose hunting lessons is
unit elastic.
perfectly unit elastic.
inelastic.
perfectly elastic.
elastic.
The difference between consumption and capital goods is that
capital goods are provided by the government.
capital goods are used to produce additional goods while consumption goods are not.
consumption goods can be enjoyed by many people at the same time.
only big corporations can afford capital goods.
it is illegal to export capital goods.
Which of the following can be a barrier to entry?
i. ownership of a necessary input
ii. requiring a government license
iii. large diseconomies of scale
i, ii, and iii
i and ii
i and iii
ii only
i only
You consume hamburgers and hot dogs. If the price of a hamburger increases while the price of a hot dog and your budget do
not change, then your budget line will
not change because your budget hasn't changed.
rotate outward and change its slope.
shift inward and not change its slope.
shift outward and not change its slope.
rotate inward and change its slope.
Scarcity means we must
make choices.
work more.
consume less.
produce less.
earn more.
A large number of sellers all selling an identical product implies which of the following?
market chaos
horizontal market supply curves
large losses incurred by all sellers
vertical market supply curves
the inability of any seller to change the price of the product
To hunters, deer in the woods are an example of a
natural monopoly.
public good.
private good.
common resource.
public resource.
For a given supply elasticity, the more inelastic the demand for a good, the larger the share of the tax paid by the
government.
buyers.
sellers.
participants other than the buyers and sellers.
None of the above answers is correct.
Measured annual income inequality overstates actual lifetime inequality because
different households are in different stages in the life cycle.
people differ in the amount of education they have attained.
homeless people are not always counted.
poverty levels vary across states.
people tend to overstate their incomes.
If the four firm concentration ratio of an industry is
less than 40, the industry is considered an oligopoly.
less than 40, the industry is considered monopolistic competition.
near 100, the industry is considered very competitive.
close to 0, the industry is considered a monopoly.
over 40, the industry is considered monopolistic competition.
The U.S. Postal Service has a monopoly over first-class mail service because
it owns a vital resource, namely all mailboxes.
stamps are copyrighted.
stamps are patented.
stamps are trademarked.
the government has granted this agency a public franchise.
Assume that there are two goods, x and y. The quantity of good x is measured on the x axis and the quantity of good y is measured on
the y axis. If the price of good y rises, then the
y axis intercept of the budget line increases and the x axis intercept of the budget line
decreases.
y axis intercept of the budget line increases.
(C) y axis intercept of the budget line decreases and the x axis intercept does not change.
(D) slope of the budget line changes.
Both answers C and D are correct.
What is the reason that all economic issues and problems occur?
All nations use some form of money to buy and sell goods and services.
Powerful governments are able to control production and consumption.
Human wants exceed the resources available to satisfy them.
People seek only their own self interest.
Humans are always wasteful and inefficient in production and consumption.
Which of the following is correct?
(A) Monopoly has a four firm concentration ratio of 100.
(B) Perfect competition has a four firm concentration ratio near zero.
(C) Monopolistic competition has a four firm concentration ratio of more than 40.
Both answers A and B are correct.
Both answers A and C are correct.
In the auto insurance market, who is most likely to have private information that leads to adverse selection?
the drivers
the government agency that regulates insurance companies
the government regulating agency and the insurance company
the insurance company and the drivers
the insurance company
Suppose the San Francisco 49ers lower ticket prices by 15 percent and as a result the quantity of tickets demanded increases by 10
percent. This set of results shows that San Francisco 49ers tickets have
an elastic demand.
a unit elastic demand.
an inelastic demand.
an inelastic supply.
an elastic supply.
The study of economics is best described as a study of
the factors that influence the stock and bond markets.
how people earn a living.
coping with scarcity, and choices made as a result of scarcity in a society.
capitalism.
the choices made in producing goods and services.
Which of the following goods is excludable and nonrival?
food
a two liter bottle of Mt. Dew
a streetlight
air
the Internet
Marginal social cost is the
price a consumer pays for one more unit of a good.
cost of producing one more unit of a good that falls on someone other than the producer.
same as marginal cost only if there is an external cost when the good is produced.
sum of the cost a producer incurs from producing one more unit of a good plus the cost of
producing one more unit of a good that falls on someone other than the producer.
cost a producer incurs producing one more unit of a good.
An increase in the price of a good
results in a movement upward along the budget line.
rotates the budget line inward and changes its slope.
results in a movement downward along the budget line.
rotates the budget line outward and changes its slope.
shifts the budget line inward and does not change its slope.
If you have found the percentage of the value of total revenue accounted for by the four largest firms in an industry, you have calculated
the
elasticity of supply.
elasticity of demand.
monopolistic concentration index.
four-firm concentration ratio.
Herfindahl-Hirschman Index.
In a perfectly competitive market, one farmer's barley is
a perfect substitute for another farmer's barley.
completely different from another farmer's barley.
slightly different from another farmer's barley.
a monopolized product in the national market.
a monopolized product in that farmer's local market.
The figure to the right shows a ________ where ________
firm(s) produce(s) ________.
natural monopoly; 2; 90 units
natural oligopoly; 3; 30 units each
natural duopoly; 2; 45 units each
monopoly; 1; 90 units
natural monopoly; 3; 90 units each
If a tax is placed on suppliers of a good, then the incidence of the tax
falls more on the sellers if demand is elastic.
usually falls more on the sellers than the buyers.
usually falls more on the buyers than the sellers.
is usually split equally between the buyers and the sellers.
falls more on the sellers if demand is inelastic.
