Microeconomics - ECO 232 - Coastal Alabama - FINAL Study Guide

Questions and answers for all chapters covered in Coastal Alabama ECO 232 class!

Which of the following best describes a monetary policy tool?

A. government spending

B. household savings

C. taxes

D. interest rates

interest rates

Macroeconomics topics do not typically include:

A. the rate of unemployment

B. the rate of inflation

C. the profit maximizing decisions of an individual manufacturer

D. economic growth

the profit maximizing decisions of an individual manufacturer

In countries like ___ the command economy predominates.

A. South Africa and Kenya

B. Germany and France

C. Cuba and North Korea

D. China and Vietnam

Cuba and North Korea

In a _____, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.

A. microeconomy

B. market-oriented economy

C. macroeconomy

D. command economy

market-oriented economy

In a market-oriented economy, the amount of good that is produced is primarily decided by the interaction of:

A. all consumers

B. buyers and sellers

C. producers and government planning committees

D. producers and input suppliers

buyers and sellers

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

A. interaction among prices, taxes and profits

B. influence of government on business behavior

C. role of unions and government in the economy

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

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

In a command economy, the ___ either makes most economic decisions itself or at least strongly influences how the decisions are made.

A. firm

B. government

C. business sector

D. market

government

Which of the following is most likely a topic of discussion in macroeconomics?

A. an increase in the price of a hamburger

B. an increase in the wage paid to auto workers

C. a decrease in the production of dvd players by a consumer electronics company

D. a decrease in the unemployment rate

a decrease in the unemployment rate

Macroeconomics:

A. analyzes mergers and acquisitions between firms

B. is narrower in scope than microeconomics

C. is concerned with the expansion of a small business into a large corporation

D. is concerned with the expansion and contraction of the overall economy

is concerned with the expansion and contraction of the overall economy

____ - a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.

A. economies of scale

B. specialization

C. division of labor

D. skill

economies of scale

Attending college is a case where the ___ exceeds the monetary cost.

A. opportunity cost

B. marginal analysis

C. marginal utility

D. budget constraint

opportunity cost

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

A. allocative efficiency

B. utility

C. the production possibilities frontier

D. scarcity

the production possibilities frontier

The lesson of ___ is to forget about the money that’s irretrievably gone and instead to focus on the marginal costs and benefits of future options.

A. marginal analysis

B. budget constraints

C. sunk costs

D. marginal utility

sunk costs

The model that economists use for illustrating the process of an individual choice in a situation of scarcity is the ___, sometimes also called the opportunity set, a diagram which shows what choices are possible.

A. consumption set

B. original budget

C. income cap

D. budget constraint

budget constraint

“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 an hour.” The opportunity cost of attending class this evening is

A. $4

B. $44

C. $40

D. $0

$44

Economists refer to this pattern, the ___, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.

A. law of increasing marginal utility

B. law of trade offs

C. law of diminishing marginal utility

D. production possibilities frontier

law of diminishing marginal utility

Scarcity implies that:

A. at the current market price, consumers are willing to purchase more of a good than suppliers are willing to produce

B. It is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available

C. consumers would be willing to purchase the same quantity of a good at a higher price

D. consumers are too poor to afford the goods and services available

It is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available

Most choices involve ____, which involves comparing the benefits and costs of choosing a little more or a little less of a good

A. marginal analysis

B. utility

C. the budget constraint

D. consumption

marginal analysis

Philosophers draw a distinction between positive states, which describe the world as it is, and ___.

A. trade-off

B. normative statement

C. budget constraint

D. opportunity cost

normative statement

The general pattern that consumption of the first few units of any good tends to bring a higher level of ___ to a person that consumption of later units is a common pattern.

A. opportunity cost

B. marginal benefit

C. sunk costs

D. utility

utility

The term “ceteris paribus” means that:

A. no one knows which variables will change and which will remain constant

B. what is true for the individuals is not necessarily true for the whole

C. everything is variable

D. all variables except those specifies are constant

all variables except those specifies are constant

When economists talk about supply, they are referring to a relationship between price received for each unit sold and the ___

A. demand curve

B. demand schedule

C. market price

D. quantity supplied

quantity supplied

If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as ___

A. excess demand

B. ceteris paribus

C. a price ceiling

D. excess supply

excess demand

According to the law of supply:

A. there is an inverse relationship between price and the quantity supplied

B. there is a direct relationship between price and the quantity supplied

C. there is a direct relationship between price and quantity demanded

D. there is an inverse relationship between price and quantity demanded

there is a direct relationship between price and the quantity supplied

___ are enacted when discounted sellers, feeling that prices are too low, appeal to legislators to keep prices from falling.

A. Price ceilings

B. Price floors

C. Subsidies

D. Rent controls

Price floors

The downward slope of the demand curve again illustrates the pattern that as ___ rise, ___ decreases.

A. price, quantity demanded

B. quantity supplied, quantity demanded

C. price, quantity supplied

D. quantity demanded, price

price, quantity demanded

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

A. quantity supplied

B. demand

C. quantity demanded

D. quantity

quantity

Economists refer to the relationship that a higher price leads to a lower quantity demanded as the ___

A. law of demand

B. market equilibrium

C. price model

D. income gap

law of demand

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

A. suppliers wish to sell less of it

B. buyers desire to purchase less of it

C. more of it is desired

D. more of it is produced

buyers desire to purchase less of it

If a firm faces ___, while the prices for the output the firm produces remain unchanged, a firm’s profits will increase.

A. a shift in demand

B. higher demand

C. lower costs of production

D. equilibrium

lower costs of production

Other things being equal, a ___ supply of workers tends to ___ real wage.

A. large, increase

B. larger, decrease

C. smaller, decrease

D. smaller, not change

larger, decrease

A straightforward example of a ___, often used for simplicity, is the interest rate.

A. price ceiling

B. rate of return

C. price floor

D. financial investment

rate of return

The supply curve of textbooks (which are produced using paper made from trees) will shift to the left in response to:

A. the end to government regulations that limit timber harvesting in national forests

B. an increase the supply of lumberjacks

C. a sharp increase in the demand for and construction of wood-frame homes

D. a decline in college tuition

a sharp increase in the demand for and construction of wood-frame homes

If the demand for software engineers ___ slower than does supply, then wages of software engineers will

A. increase, remain constant

B. increases, fall

C. increases, rise

D. decreases, fall

increases, fall

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

A. market

B. high-skill labor

C. technology

D. low wage

technology

The “law of supply” functions in labor markets: that is, a higher ___ for labor leads to a higher quantity of labor supplied

A. price

B. demand

C. quantity

D. supply

price

Many economists believe that the trend toward greater wage inequality across the U.S. economy was primarily caused by ___

A. inflation

B. the recession

C. the rise of global markets

D. new technologies

new technologies

If labor demand is downward sloping and labor supply is upward sloping, then when labor demand rises faster than labor supply, it is expected that real wages

A. will increase

B. may increase, decrease or stay the same depending on the relative slopes

C. will stay the same

D. will decrease

will increase

Improvements in the productivity of labor will tend to:

A. increase in the supply of labor

B. decrease the supply of labor

C. increase wages

D. decrease wages

increase wages

The imposition of a price ceiling on a market often results in:

A. a shortage

B. a decrease in discrimination on the part of sellers

C. an increase in investment in the industry

D. a surplus

a shortage

The price elasticity of demand measures the:

A. responsiveness of quantity demanded to change in a price

B. responsiveness of quantity demanded to a change in income

C. responsiveness of quantity demanded to a change in quantity supplied

D. responsiveness of price to a change in quantity demanded

responsiveness of quantity demanded to change in a price

Demand is said to be ___ when the quantity demanded is very responsive to to changes in price

A. unit elastic

B. elastic

C. independent

D. inelastic

elastic

Demand is said to be ___ when the quantity demanded changes at the same proportion as the price

A. unit elastic

B. elastic

C. independent

D. inelastic

unit elastic

When demand is inelastic:

A. demand curves appear to be fairly flat

B. the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price

C. price elasticity of demand is greater than 1

D. consumers are not very responsive to changes in price

consumers are not very responsive to changes in price

Bill 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 hair cuts purchased. What is the elasticity of demand facing Billy Bob’s Barber Shop?

A. 3.0

B. 0.15

C. 0.05

D. 0.10

3.0

If the demand curve is perfectly elastic, then an increase in supply will:

A. decrease the price but result in no change in the quantity exchanged

B. increase both the price and the quantity exchanged but result in no change in the price

C. increase the quantity exchanged but result in no change in the price

D. increase the price but result in no change in the quantity exchanged

increase the quantity exchanged but result in no change in the price

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

A. inelastic

B. elastic

C. unit elastic

D. unit inelastic

elastic

The price elasticity of demand for tickets to local basketball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would recommend:

A. increasing the price of game tickets because demand is inelastic

B. not changing the price of game tickets because demand is unit elastic

C. decreasing the price of game tickets because demand is elastic

D. increasing the price of tickets because demand is elastic

increasing the price of game tickets because demand is inelastic

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:

A. elasticity of demand for soda is 0.5 and inelastic

B. cross price elasticity of demand for soda is -0.5

C. elasticity of demand for iced tea is 2 and is elastic

D. cross price elasticity of demand for iced tea is -2

cross price elasticity of demand for iced tea is -2

The elasticity of supply is defined as the ___ change in quantity supplied divided by the ___ change in price

A. percentage, marginal

B. total, percentage

C. percentage, percentage

D. marginal, percentage

percentage, percentage

The term ___ refers to the additional utility provided by one additional unit of consumption

A. added utility

B. marginal utility

C. Giffen utility

D. utility

marginal utility

The term ___ describes a situation where a ___ causes a reduction in the buying power of income, even though actual income has not changed

A. substitution effect, lower price

B. intertemporal budget, higher price

C. income effect, higher price

D. intertemporal budget, lower price

income effect, higher price

The ___ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price

A. preferences effect

B. income effect

C. substitution effect

D. backward bending apply curve

substitution effect

Substitution and effects of a change in price of a good may be used to explain the:

A. inverse relationship between price and quantity demanded

B. direct relationship between price and quantity purchased

C. direct relationship between income and demand

D. direct relationship between price and quantity supplied

direct relationship between income and demand

When Marietta chooses to only purchase a combination of goods that lie within her budget line, she:

A. is decreasing utility

B. is maximizing utility

C. likely has negative savings

D. mut reduce the quantity

is maximizing utility

Economic theory offers ___ about the full range of possible evens and responses, which can prevent ___ about how households will respond to changes in prices or incomes

A. two budget constraint theories, misguided possibilities

B. one budget constraint theory, unrealistic possibilities

C. a systematic way of thinking, misguided conclusions

D. systematic consumption choices, unrealistic conclusions

a systematic way of thinking, misguided conclusions

An inferior good is a product:

A. for which demand increases as income increases

B. for which there is no demand

C. that has an upward sloping demand curve

D. for which demand decreases as income increases

for which demand decreases as income increases

The key assumption that accompanies the use of numbers for measuring utility is that:

A. people make consumption decisions

B. utility cannot be measured by an outside party

C. utility can be perfectly measured

D. individuals choose based on their preferences

individuals choose based on their preferences

In microeconomic terms, the ability of a good or a service to satisfy wants is called:

A. opportunity cost

B. profit potential

C. utility maximization

D. utility

utility

The marginal utility of two goods changes ___

A. if the mother controls the household budget

B. for the better, if taxes are imposed

C. if they are intertemporal choices

D. with the quantities consumed

with the quantities consumed

When ___ exist, doubling of all inputs will result in more than doubling output, which means ___.

A. labor inputs, economies of scale

B. low labor inputs, larger scale of production leads to higher costs

C. economies of scale, a larger factory can produce at a lower average cost than a smaller company

D. economies of scale, a smaller factory can produce at a lower average cost than a larger company

economies of scale, a larger factory can produce at a lower average cost than a smaller company

Fixed costs are important because, at least in the ___, the firm ___.

A. long run, cannot alter them

B. short run, can alter them

C. long run, can alter them

D. short run, cannot alter them

short run, cannot alter them

Which of the following falls outside of the classification of business expenditures that fall in the category of variable costs?

A. costs related to labor expenditures

B. costs related to physical inputs

C. costs that increase with the quantity produced

D. costs of research and development

costs of research and development

The ___ curve will always lie below the curve for average cost because average cost included ___ in the numerator of the calculation.

A. average variable, fixed

B. marginal cost, total costs

C. marginal costs, fixed costs

D. average variable cost. total costs

average variable, fixed

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

A. diminishing marginal returns

B. returns to scale

C. constant returns to scale

D. economies of scale

constant returns to scale

In order to calculate marginal cost, the change in___ is divided by the amount of change in quantity

A. decreasing marginal returns

B. either total cost or average cost

C. either total cost or variable cost

D. increasing marginal returns

either total cost or variable cost

____ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas.

A. constant returns to scale

B. economies of scale

C. diseconomies of scale

D. agglomeration factors

agglomeration factors

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from physical inputs Marcella requires to operate her business. Which is it?

A. accountant’s fees for preparing tax returns

B. costs of purchasing artwork to sell in the gallery

C. wages paid to three part time employees

D. physical space for the gallery

physical space for the gallery

Whatever the firm’s quantity of production, ___ must exceed total costs if its to earn a profit

A. variable costs

B. marginal costs

C. average costs

D. total revenue

total revenue

The ___ of all firms can be broken down into some common underlying patterns

A. diminishing short run costs

B. total revenues

C. diminishing long run costs

D. cost structure

cost structure

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

A. excluding its opportunity costs

B. including its marginal revenue

C. including its opportunity costs

D. excluding its marginal revenue

including its opportunity costs

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

A. if they set their own price in the short run, but in the long run, the market sets the price

B. provided each is willing to accept the prevailing market price

C. if they set their own price in the long run, but in the short run, the market sets the price

D. provided quality is perceptible and determines the market price

provided each is willing to accept the prevailing market price

In the ___, the perfectly competitive firm will seek out ___

A. short run, the quantity of output where profits are highest

B. short run, profits by ignoring the concept of total cost analysis

C. long run, methods to reduce production and shut down

D. long run, the quantity of output where profits are highest

short run, the quantity of output where profits are highest

A perfectly competitive industry is a

A. hypothetical extreme

B. realistic assumption

C. hypothetical assumption

D. realistic extreme

hypothetical extreme

If a firm’s revenues do not cover its average variable costs, then that firm has reached its ___

A. opportunity margin

B. marginal point

C. shutdown point

D. price taking point

shutdown point

A manufacturer would likely make an ___ in a market following the long run process of beginning and expanding product in response to

A. accounting profit, an incentive for profit

B. entry, a sustained pattern of profit

C. accounting profit, a strategy to grow profits

D. entry, an incentive to add to profits

entry, a sustained pattern of profit

In the ___, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where ___.

A. long run, fixed costs can be eliminated

B. long run, increasing production

C. short run, losses are smallest

D. short run, fixed costs can be reduced

short run, losses are smallest

It is said in a perfectly competitive market, raising the price of a firm’s product from the prevailing market price of $179 to $199,

A. will cause the firm to recover some of its opportunity costs

B. will likely cause the firm to reach its shutdown point immediately

C. could likely result in a notable loss of sales to competitors

D. is a sure sign the firm is raising the given price in the market

could likely result in a notable loss of sales to competitors

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

A. variable costs

B. marginal costs

C. average costs

D. total costs

marginal costs

The term ___ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product

A. trend setter

B. price taker

C. price setter

D. business entity

price taker

The largest cattle rancher in a given region will be unable to have a ___ sufficient numbers of smaller cattle ranchers provide sources of competition

A. patent

B. monopoly

C. oligopoly

D. monopolistic competition

monopoly

Which of the following will present the least amount of concern to a firm that has a monopoly over a particular industry?

A. barriers to entry and competitors’ patent protection

B. the competitive actions of other business firms

C. whether consumers will purchase its product

D. whether consumers will spend on different products

the competitive actions of other business firms

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

A. the factors of the market demand and supply will set the price

B. government will deregulate to ensure the company’s monopoly

C. they will strive to reach efficiencies only they know how to make

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

that firm could set up barriers to entry to discourage competition

A ___ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve

A. oligopoly

B. monopoly

C. monopolistic competition

D. natural monopoly

natural monopoly

A firm that holds a monopoly position in the market place is

A. subject to infinite market forces

B. a price taker

C. a price maker

D. monopolistically competitive

a price maker

The two primary factors determining monopoly market power are the firm’s

A. variable cost curve and its fixed cost structure

B. demand curve and level of wealth within its market

C. demand curve and its cost structure

D. revenues and size of its customer base

demand curve and its cost structure

Intellectual property law is a body of law that includes

A. trade, patent and trade secret legislation

B. the right of inventors to produce their inventions

C. the right of inventors to sell their inventions

D. copyright legislation, as well as all of the above

copyright legislation, as well as all of the above

Government ___ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for ___

A. trademark, an unlimited time

B. copyright, a limited time

C. patent, a limited time

D. trade secret, an unlimited time

patent, a limited time

For a pure monopoly to exist,

A. there are limited sellers in a particular industry

B. there are a few sellers in a given industry

C. there is only one seller, therefore no industry

D. there is a singular seller in a particular industry

there is a singular seller in a particular industry

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

A. patent laws

B. deregulation

C. market forces

D. technological advances

deregulation

What role can advertising play with respect to differentiated products?

A. allows a firm to raise the prevailing market price

B. shapes perceived demand for a price taker

C. shapes consumers intangible preferences

D. allows a firm to sell any quantity it wishes

shapes consumers intangible preferences

The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is

A. game theory

B. prisoner’s dilemma

C. collusion theory

D. oligopoly collusion

game theory

Product differentiation may occur in ___ because ___ created strong preferences for certain brands

A. imperfect competition, advertising and consumer habits

B. the minds of buyers, past habits and advertising

C. imperfect competition, the concept of differentiated products

D. shaping intangible preferences, predatory pricing

the minds of buyers, past habits and advertising

A group of firms that have a formal agreement to collude and produce the monopoly output and sell at a monopoly price is called a ___

A. duopoly

B. prisoner’s dilemma

C. cartel

D. game theory

cartel

When firms act together in this way to reduce output and keep prices high, it is called ___

A. a carrot

B. an oligopoly

C. a collusion

D. a monopoly

a collusion

Oligopoly firms acting individually may seek to gain profits ___.

A. by selling products that are distinctive in some way

B. by having a mini-monopoly or through tough competition

C. by having a mini-monopoly on a particular brand name

D. by expanding levels of output and cutting prices

by expanding levels of output and cutting prices

Perfect competition and monopoly stand at ___ of the spectrum of competition

A. the low end

B. the mid way

C. the high end

D. opposite ends

opposite ends

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

A. distinctly different in a particular way

B. virtually identical on the competition spectrum

C. at opposite ends of the competition spectrum

D. distinctly similar in a particular way

distinctly different in a particular way

___ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry

A. an oligopoly

B. a cartel

C. collusion

D. a monopoly

an oligopoly

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

A. natural gas

B. Chanel No. 5 (perfume)

C. electricity

D. tap water

Chanel No. 5 (perfume)