Microeconomics Final

Which of the following examples represents the relationship between division of labor and product?

a.) Each assembly line worker completes a single task in the manufacturing process.

b.) A manufacturing firm replaces labor with robotics.

c.) A company has been found to have discriminatory hiring practices.

d.) A company lays off 20% of its workforce due to low demand for its product.

e.) As education levels increase, workers become more skilled.

a.) Each assembly line worker completes a single task in the manufacturing process.

Why is scarcity a problem?

Human wants exceed our ability to satisfy those wants.

Which of the following newspaper headlines pertain to a microeconomic topic?

a.) Latest pricing data shows inflation is slowing.

b.) Apple announces a shortage of chips used in iPhones.

c.) Japan’s economy has slipped into a recession in the second quarter.

d.) The Federal Reserve announces third interest rate increase this year.

b.) Apple announces a shortage of chips used in iPhones.

In the circular flow diagram, _______ flow from businesses to households, and _________ flows from households to businesses.

goods and services; labor

In a market economy, most business decisions are made by __________.

private citizens and firms

In a command economy, most business decisions are made by ___________.

the government

What can specialization lead to?

An increase in overall production.

What kind of the economy does the United States have?

A mixed economy.

Alex has a budget of $200 a month for movie tickets and restaurant meals. A movie ticket will cost $10 and a restaurant meal costs $20. Which of the following combinations is part of Alex’s budget constraint?

a.) Four movie tickets and eight restaurant meals.

b.) Eight movie tickets and eight restaurant meals

c.) Two movie tickets and ten restaurant meals.

d.) Four movie tickets and two restaurant meals.

a.) Four movie tickets and eight restaurant meals.

When will an economy achieve productive efficiency?

When it’s maximizing production and could not increase production of both goods at the same time.

When will an economy achieve allocative efficiency?

When it’s producing the combination of goods and services that is most valued by the people in the economy.

If the state of Texas has a lower opportunity cost for producing beef compared to Alaska, then…

Texas has the comparative advantage in beef, and Alaska should purchase beef from Texas.

Why does scarcity exist?

We have unlimited wants and limited resources.

Consider the market for Crest toothpaste. What will happen if the price of Colgate toothpaste decreases?

Demand for Crest would shift to the left.

Consider the market for Crest toothpaste. What will happen if plastic becomes more costly?

Supply of Crest would shift to the left.

Consider the market for Crest toothpaste. What will happen if doctors find that brushing three times per day cuts the risk of heart disease in half?

Demand for Crest would shift to the right.

Consider the market for Crest toothpaste. What will happen if the government imposes additional regulations on toothpaste production?

Supply of Crest would shift to the left.

If you feel like you got a great deal on buying a used couch, that probably means that you experienced…

a consumer surplus.

The television market in recent years has seen many more tv’s sell at much lower prices. What shift in demand or supply is most likely to explain this outcome?

An increase in supply.

Less people are having to wear business attire as more people work from home. At the same time, the price of leather has increased. What effect will these two occurrences have on the price and quantity of dress shoes?

Quantity will decrease but price is ambiguous.

Demand for skinny jeans increases dramatically, pushing up the price of skinny jeans. What happens to supply?

Quantity supplied will increase as we move up along the original Supply curve.

Consider the market for cheese. If the price of milk increases, what will happen?

The supply of cheese would decrease.

When is a market most efficient?

When social or total surplus is maximized.

During the pandemic, many workplaces required masks, but the mask factories had trouble staying open due to personnel issues. What effect did these two occurrences have on the market for masks?

The price will increase, but quantity is ambiguous.

Which of the following will not shift the supply curve for corn?

a.) A change in the price of beans

b.) A change in the expected future price of corn

c.) A change in corn growing technology

d.) A change in the price of corn

d.) A change in the price of corn

If the price is set too high in a market, there will most likely be what?

A surplus

Generic branded grocery items are considered inferior goods. This means that during a recession, demand for these goods __________.

increases

You grow carrots to sell at the farmer’s market. What happens to the market for carrots if the cost of fertilizer doubles?

Price will increase and quantity will decrease.

Which of the following might increase the demand for labor at UNK?

a.) A decrease in the number of students

b.) An increase in demand for college education

c.) A decrease in the wage rate

d.) More workers available for hire

b.) An increase in demand for college education.

When the wage rate is above equilibrium, we would expect

A surplus of workers.

Equilibrium in financial markets is attained when…

the interest rate is at a level where the quantity of loanable funds people want to borrow just equals the quantity of loanable funds people wan tot save/invest.

Other things being equal, an increase in the supply of workers tends to _________ real wages.

decrease

Many states have ___________, which impose an upper limit on the interest rate that lenders can charge.

usury laws

When consumers and businesses have greater confidence in the economy, and therefore greater confidence that they will be able to repay loans in the future, ____________.

demand for financial capital will shift to the right

As the demand for coffee increases, ___________.

the demand for baristas will increase

Who are the “demanders” in the labor markets?

Companies/employers

Who are the “suppliers” in the labor markets?

Workers/employees

Who are the “demanders” in the financial capital markets?

Borrowers

Who are the “suppliers” in the financial capital markets?

Investors/savers

The price of avocados increases by 10%, which leads to an 8% decrease in the quantity people purchase. We can conclude that…

demand is inelastic.

Billy Bob’s Barber Shop knows that a 5% increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchases. What is the elasticity of demand facing Billy Bob’s Barber Shop?

3\.0

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:

rise and the equilibrium quantity to stay the same

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi’s demand curve?

1\.0

A good with many substitutes will probably have a demand curve that is relatively _________.

elastic

A perfectly elastic supply curve is:

horizontal

The longer the time period considered, the more the elasticity of supply tends to:

increase (become more elastic)

Sue, a massage therapist, will sell 10 sessions per day when the price is $84 per session, and 6 per day when the price is $76. Sue’s elasticity of supply is ________.

5

The term _____________ is used to describe the common phenomenon where each marginal unit of a consumed good provides less of an addition to total utility than the previous unit.

diminishing marginal utility

If your budget constraint shifts to the right, what can you conclude?

You have an increased income.

When Marietta chooses to only purchase a combination of goods that lie on her budget line, her goal is…

maximizing utility

Which of the following is a tell-tale signal that you have purchased the combination of goods that maximized your utility?

a.) The marginal utility per dollar is the same for all goods.

b.) The marginal utility per dollar is controlled by trade-offs.

c.) You concentrate your spending on the good with the highest total utility.

d.) You do not experience diminishing marginal utility.

a.) The marginal utility per dollar is the same for all goods.

Which of these statements about the concept of utility is true?

a.) The Federal Government publishes updated utility charts annually.

b.) Marginal utility increases as we consume more of a good.

c.) Utility for a specific good is generally the same for everyone.

d.) Utility is a measure of satisfaction derived from consumer choices. It is different for everyone.

e.) Total utility always decreases as we increase consumption.

d.) Utility is a measure of satisfaction derived from consumer choices. It is different for everyone.

What is a firm that faces no competitors referred to as?

A monopoly

______________ include the costs of production that do NOT increase as the quantity produced increases in the short run.

Fixed costs

When a firm produces 10 units, and its fixed costs are $90 and its total costs are $100, what is its variable cost?

$10

What is an economy experiencing when as the quantity of output rises, the average cost of production decreases?

Economies of scale

Which of the following is not an example of a fixed cost?

a.) Costs that must be made before production starts.

b.) Rent.

c.) Costs incurred in the act of producing, such as labor.

d.) Interest on a bank loan.

c.) Costs incurred in the act of producing, such as labor.

The marginal cost curve generally slopes which way?

Upward

Why is the marginal cost curve generally upward-sloping?

Because diminishing marginal returns implies that additional units are more costly to produce.

What is the equation to calculate marginal cost?

Total Cost/Change in Quantity

The long run is described as the length of time ____________.

where all inputs are variable

What term refers to a firm operating in a perfectly competitive market that must accept the prevailing market price for its product?

Price taker

A firm will shut down temporarily if its _________ is less than its __________.

Price; average variable cost

Which of the following is NOT a characteristic of a perfectly competitive market?

a.) Many buyers and many sellers.

b.) Firms are able to sustain economic profits in the long run.

c.) Few barriers to entry and exit.

d.) All firms produce identical products.

b.) Firms are able to sustain economic profits in the long run.

Firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

a.) What quantity to produce.

b.) What price to charge.

c.) How much to advertise.

d.) What quality to produce.

a.) What quantity to produce.

How is the price set in a perfectly competitive market?

Market supply and demand set the price.

When firms in a perfectly competitive market are earning an economic loss in the long run…

some firms will exit the market

In the short-run, a perfectly competitive firm…

can earn an economic profit, economic loss, or zero economic profit.

In the long-run, a perfectly competitive firm will earn…

zero economic profit.

Which of the following is closest to a perfectly competitive market?

a.) Agricultural products

b.) Diamonds

c.) Athletic shoes

d.) Soft drinks

e.) Electricity distribution

a.) Agricultural products

If a firm in a perfectly competitive market faces an equilibrium market price of $5, what is its marginal revenue?

$5

T/F: Perfectly competitive markets are efficient

True

T/F: Monopolistic competitive markets are efficient

False

A monopoly is market with how many suppliers?

One

A natural barrier to entry is defined as a barrier that arises because…

one firm can meet the entire market demand at lower average total cost than could two or more firms.

Which of the following is NOT correct about patents?

a.) Patents encourage invention of new products.

b.) Patents stimulate innovation.

c.) A patent is barrier to entry.

d.) Patents encourage competition.

e.) Patents are granted to the inventor of a product or service.

d.) Patents encourage competition.

What direction is the demand curve for a monopoly sloping?

Downward

If a monopoly is making a large economic profit, what keeps other firms from joining the market and competing away the profit?

There are barriers to entry.

At the profit-maximizing quantity and price for the monopoly in the figure above, Yaw Spa is making an __________ on the sale of massages.

economic profit

Why does a monopoly creates a deadweight loss?

The monopoly produces less than the efficient quantity.

What is an example of a monopoly?

The local water company

Which of the following is NOT a characteristic of monopolistic competition?

a.) Large number of firms

b.) Product differentiation

c.) Barriers to entry

d.) Emphasis on advertising and product development

e.) Downward sloping demand curve

c.) Barriers to entry

Which of the following describes the demand curve for a firm in monopolistic competition?

a.) Perfectly elastic

b.) Perfectly inelastic

c.) More elastic than a monopolistic

d.) More elastic than a perfectly competitive firm

e.) Vertical

c.) More elastic than a monopolistic

In the long run, firms in monopolistic competiton will:

earn zero economic profit

Why might society be satisfied with the inefficiency of a monopolistically competitive market?

Because product differentiation and variation are valued

Which of the following is the best example of a differentiated product?

a.) Beets in the local supermarket

b.) Diamonds

c.) Soybeans

d.) Running shoes

e.) Electricity

d.) Running shoes

What is a group of firms acting together to limit output, raise price, and increase economic profit?

Cartel

The players in a game theory situation often don’t act in their joint interest because of which of the following?

a.) They do not realize the benefit of cooperation.

b.) Players strive to minimize their opponents’ profits.

c.) Players do not understand the game and its payoffs.

d.) It is not in each player’s self-interest to cooperate.

d.) It is not in each player’s self-interest to cooperate.

An oligopoly will maximize economic profits if it sets its price and quantity combination in the same way as what kind of market?

Monopolist

A monopolistically competitive market resembles a perfectly competitive market in all the following ways except:

a.) Large number of sellers

b.) No barriers to entry

c.) Allocatively efficient

d.) Economic profit possible in the short run but no long run

c.) Allocatively efficient

A monopolistically competitive market resembles a monopoly in all the following ways except:

a.) Downward sloping demand curve

b.) Not allocatively efficient

c.) Will produce the quantity where MC=MR

d.) Barriers to entry

d.) Barriers to entry

What term describes a situation where a third party, outside the transaction, suffers from a market transaction by others?

Negative externality

What include both the private costs incurred by firms and also costs incurred by third parties outside the production process?

Social costs

which of the following would be classified as a situation where a third-party might receive an external benefit?

a.) City buying 10,000 trees for green space renewal projects.

b.) Increased levels of air pollution in neighborhoods near a football stadium.

c.) A consumer enjoys a dinner at a local restaurant.

d.) Two firms trading pollution credits to avoid cutting their toxic emissions.

a.) City buying 10,000 trees for green space renewal projects.

Why do U.S. economists commonly refer to negative externalities as an example of market failure?

When externalities exist, the private supply curve does not include the external costs, leading to over-production of the good.

if a government chooses a system of marketable permits as its environmental managing tool, the reduction in pollution will do what?

Take place in the firms where it is lease expensive to do so.

A beekeeper decides to locate her business on a plot of land that is between an apple orchard and an elementary school. What is a positive externality that can result?

The bees helping to pollinate the orchard, leading to more fruit.

To ensure all students are protected from getting the flu this year, your school offers free flue shots. What type of externality exists in this example?

Positive externality

Which of the following actions would most likely have an external benefit?

a.) Easting a peanut butter sandwich

b.) Throwing trash out your car window as you drive to class

c.) Sleeping

d.) Attending college

e.) Developing a better marketing strategy for Honda

d.) Attending college

A public good is…

nonrival and nonexludable