Microeconomics Exam

In the ____________, households work and receive payment from firms.

labor market

Economic models like the _____________________ are not physical models, but instead are diagrams or graphs or even mathematical equations that represent economic patterns or theories.

circular flow diagram

The circular flow diagram of economic activity is a model of the:

flow of goods, services, and payments between households and firms.

Which of the following best describes a monetary policy tool?

interest rates

Which of the following best describes a fiscal policy tool?

government spending

Choose the correct statement concerning natural disasters.

They create jobs at the expense of other jobs, and they destroy wealth

In the Circular Flow Model do businesses demand or supply? (tricky question, think about it, there are two markets in the model)

both

Most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.

Market-oriented economy

If a window gets broken and somebody says, 'do not fret, this creates wealth because it creates a job for the glass maker'.  What is that an example of:

Broken Window Fallacy

Today the Broken Window Fallacy can similarly be applied to the fear of jobs being lost due to a rise in

robotics

Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:

the benefit to his grades from studying for an hour

Scarcity exists because of

unlimited wants and limited resources.

"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is:

$44

As depicted in  _________________________________, it is necessary to give up some of one good to gain more of the other good.

the production possibilities frontier

Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________s, which describe how the world should be.

normative statement

The budget constraint line shows opportunity cost goes away with a rise in income.

false

Who wrote: "The Wealth of the Nations"?

Adam Smith

Does the budget constraint implies there is an opportunity cost when choosing between two goods.

True

What is a chart that shows all possible combinations a country can produce of two different goods.  It shows the trade off of producing more of one good over another one.

A Productions Possibility Frontier

What does a budget constraint show?

Various combinations of goods or services an individual can purchase with their income.

A supply curve is a graphical illustration of the relationship between price, shown on the vertical axis, and ____________, shown on the horizontal axis.

quantity supplied

The term "ceteris paribus" means that:

all variables except those specified are constant.

The nature of demand indicates that as the price of a good increases:

buyers desire to purchase less of it

A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the __________________ .

supply curve to the right

Interpret the following statement: "An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."

The statement is correct.

A surplus happens when

Market price is above market equilibrium

What is the definition of a shortage

When quantity demanded is greater than quantity supplied

The information that markets generate to guide the distribution of resources is called:

price signals

In a market for a good, if there is a shift in supply (supply goes up).  What happens to demand?

There is a movement down along the demand curve.

Which of the following will not result in a rightward shift of the market supply curve for labor?

an increase in labor productivity

In the market for labor.  What happens to real wages when there is an increase in the demand curve?

will increase

The law of supply functions in labor markets; that is, a higher __________ for labor leads to a higher quantity of labor supplied.

price

Steel mill wage costs increase by 18 percent over a year. What is the likely economic effect on the market for steel?

There is an increase in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel.

As the __________ substitute for low-skill labor becomes available, the demand curve for low-skill labor will shift to the left.

technology

Which of the following results in a rightward shift of the market demand curve for labor?

an increase in demand for the firm's product

Improvements in the productivity of labor will tend to:

increase wages

A more efficient means of processing algae to produce an anticancer drug is discovered. As a result, the supply curve for the drug will:

shift to the right, decreasing the price of the drug

When consumers and businesses have greater confidence that they will be able to repay in the future, _______________________.

the quantity demanded of financial capital at any given interest rate will shift to the right.

Which of the following will not result in a leftward shift of the market demand curve for labor?

an increase in the wage rate

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo’s demand curve?

4\.25

A price cut will increase the total revenue a firm receives if the demand for its product is:

elastic

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.

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

3

Price elasticity of demand is defined as:

the percentage change in quantity demanded divided by the percentage change in price.

When a business wants to increase its revenue should it raise its price?

It depends on the elasticity of demand.

Revenue is equal to:

Price times quantity (P\*Q)

If elasticity of demand is greater than one economist say that the demand is elastic

true

Elasticity of demand is percentage change in quantity demanded divided by percentage change in price

true

Is Elasticity of Demand calculated by absolute changes or percentage changes?

percentage changes

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

variable costs

______________ include all of the costs of production that increase with the quantity produced.

variable costs

In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

the quantity of output

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

Monopolistic competition

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production.

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

total revenue

A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.

constant returns to scale

Which of the following should typically be ignored because spending has already been made and cannot be changed?

suck costs

___________ include all spending on labor, machinery, tools, and supplies purchased from other firms.

total costs

Idaho farmers can sell as large a quantity of their potato crop as they wish,

provided each is willing to accept the prevailing market price.

Under perfect competition, any profit-maximizing producer faces a market price equal to its

marginal costs

Economic profit can be derived from calculating total revenues minus all of the firm’s costs,

including its opportunity costs.

In economics, the term "shutdown point" refers to the point where the

average variable cost curve crosses the marginal cost curve.

If a perfectly competitive firm is a price taker, then

pressure from competing firms will force acceptance of the prevailing market price

For a perfectly competitive firm, the marginal cost curve is identical to the firm’s ________________ .

supply curve

If the price that a firm charges is lower than its ____________ of production, the firm will suffer losses.

average cost

If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?

price of competing products

Firms operating in a market situation that creates ___________________, sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity and coal rose sharply. This can be interpreted using supply and demand by saying it was a shift in the demand for electricity and coal, but what can be said about the supply curve?

there is a movement along the marginal costs curves

Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

output will be too small and its price too high.

If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then

that firm could set up barriers to entry to discourage competition.

The marginal revenue curve for a monopolist ____________________ the market demand curve.

always lies beneath

If monopolists are able to produce fewer goods and sell them at a higher price than they could under perfect competition, the result will be

high sustained profits.

Which of the following is most unlikely to present a barrier to entry into a market?

deregulation

Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following.  Which one is it?

natural monopoly

The use of sharp, temporary price cuts as a form of _________________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.

predatory pricing

Which one of the following is the most accurate description of a monopolist?

a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

The slope of the demand curve for a monopoly firm is

downward sloping

Which of the following is most likely to be a monopoly?

local electricity distributor

As the name monopolistic competition implies, a firm’s decisions in this setting will in certain ways resemble ______________ and in other ways resemble________________ .

monopoly; perfect competition

Perfect competition and monopoly stand at _____________ of the spectrum of competition.

opposite ends

What role can advertising play with respect to differentiated products?

shapes consumers intangible preferences

_________ arises when firms act together to reduce output and keep prices high.

Collusion

If a monopoly or a monopolistic competitor raises their prices, the quantity demanded ____________.

will decline

If a monopoly or a monopolistic competitor raises their prices, then

decline in quantity demanded will be larger for the monopolistic competitor.

In the competitive market for figure skate blades, manufacturers offer an array of products that are

distinctly different in a particular way.

Shopping malls typically lease retail space to a large number of clothing stores.  When this group of retailers competes to sell similar but not identical products, they engage in what economists call ________________________.

monopolistic competition

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,

the firm should keep expanding production.

Which of the following would be classified as a differentiated product produced by a monopolistic competitor?

news channel 5

In addition to the current levels of air and water pollution, a list of important environmental issues would most likely include:

extinction of species and all of the above

Which of the following will need to strike some balance between economic output and environmental quality as a prominent climate change priority?

every country

A positive externality arises in a situation where a third party, outside the transaction,

benefits from a market transaction by others.

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

externalities present a case where markets only consider some social costs

Market failure describes a situation in which the market itself ______________________ in a way that balances social costs and benefits.

fails to allocate resources efficiently

If you are highly asthmatic, then having high levels of industrial air pollutants waft over your house every day

would be a negative externality.

Using the term "spillover" is a less formal means of describing

an externality.

A pollution charge is a form of tax imposed on

the quantity of pollution that a firm emits.

____________________  describes a situation where a third party, outside the transaction, suffers from a market transaction by others.

Negative externality

Traditionally, policies for environmental protection in the U.S. have focused on __________________  pollutant could be emitted.

setting limits for how much of each

The term "basic research" applies specifically to research pertaining to fundamental scientific breakthroughs that may offer commercial applications in the ______________.

distant future