Microeconomics Kế CFAB 65

When society requires that firms reduce pollution, there is________

A.   a trade-off because of reduced incomes to the firms' owners and workers.

B.   a trade-off only if some firms are forced to close.

C.   no trade-off, since the cost of reducing pollution falls only on the firms affected by the requirements.

D.   no trade-off, since everyone benefits from reduced pollution.

A.   a trade-off because of reduced incomes to the firms' owners and workers.

Stan buys a 1966 Mustang for $2,000, planning to restore and sell the car. He goes on to spend $8,000 restoring the car. At this point he can sell the car for $9,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $12,000. Stan should:

A.   complete the repairs and sell the car for $12,000.

B.   sell the car now for $9, 000.

C.   never try such an expensive project again.

D.   be indifferent between i) selling the car now and (ii) replacing the engine and then selling it.

A.   be indifferent between i) selling the car now and (ii) replacing the engine and then selling it.

A microeconomist — as opposed to a macroeconomist — might study

A.   the effect of borrowing by the federal government on the inflation rate.

B.   the effect of rising oil prices on employment in the airline industry.

C.   changes in the nation's unemployment rate over short periods of time.

D.   alternative policies to promote higher living standards throughout the nation.

B.   the effect of rising oil prices on employment in the airline industry.

The bowed shape of the production possibilities frontier can be explained by the fact that

A.   all resources are scarce.

B.   economic growth is always occurring.

C.   the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.

D.   the only way to get more of one good is to get less of the other.

C.   the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.

Consider the market for new DVDs. If DVD players became cheaper, buyers expected DVD prices to fall next year, used DVDs became more expensive, and DVD production technology improved, then we could safely conclude that the equilibrium price of a new DVD would

A.   rise.

B.   fall.

C.   stay the same.

D.   We couldn't be sure what it might do.

D.   We couldn't be sure what it might do.

Which of the following might cause the supply curve for an inferior good to shift to the right?

A.   An increase in input prices.

B.   A decrease in consumer income.

C.   An improvement in production technology that makes production of the good more profitable.

D.   A decrease in the number of sellers in the market.

C.   An improvement in production technology that makes production of the good more profitable.

How does total revenue change as one moves downward and to the right along a linear demand curve?

A.   It always increases.

B.   It always decreases.

C.   It first increases, then decreases.

D.   It is unaffected by a movement along the demand curve.

C.   It first increases, then decreases.

For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

A.   The relevant time horizon is short.

B.   The good is a luxury.

C.   The market for the good is narrowly defined.

D.   There are many close substitutes for this good.

A.   The relevant time horizon is short.

The quantity sold in a market will decrease if the government

A.   decreases a binding price floor in that market.

B.   increases a binding price ceiling in that market.

C.   increases a tax on the good sold in that market.

D.   More than one of the above is correct.

C.   increases a tax on the good sold in that market.

(binding price floor and price celling allow more transaction => quantity sold increases)

Suppose buyers of liquor are required to send $1.00 to the government for every bottle of liquor they buy. Further, suppose this tax causes the effective price received by sellers of liquor to fall by $0.80 per bottle. Which of the following statements is correct?

A.   This tax causes the demand curve for liquor to shift downward by $1.00 at each quantity of liquor.

B.   The price paid by buyers is $0.20 per bottle more than it was before the tax.

C.   Eighty percent of the burden of the tax falls on sellers.

D.   All of the above are correct.

D.   All of the above are correct.

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus

A.   would necessarily increase even if the higher price resulted in a surplus of widgets.

B.   would necessarily decrease because the higher price would create a surplus of widgets.

C.   might increase or decrease.

D.   would be unaffected.

A.   would necessarily increase even if the higher price resulted in a surplus of widgets.

Which of the following will cause an increase in consumer surplus?

A.   an increase in the production cost of the good

B.   a technological improvement in the production of the good

C.   a decrease in the number of sellers of the good

D.   the imposition of a binding price floor in the market

B.   a technological improvement in the production of the good

David walks Carolyn's dog once a day for $50 per week. Carolyn values this service at $60 per week, while the opportunity cost of David's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus?

A.   $50

B.   $30

C.   $25

D.   $0

B.   $30

When the price of a good is measured in dollars, then the size of the deadweight loss that results from taxing that good is measured in

A.   units of the good that is being taxed.

B.   units of a related good that is not being taxed.

C.   dollars.

D.   percentage change.

C.   dollars.

Which of the following statements is not correct?

A.   Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level.

B.   Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution.

C.   Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution.

D.   Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment.

C.   Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution.

Negative externalities lead markets to produce

A.   greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

B.   smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

C.   greater than efficient output levels and positive externalities lead markets to produce efficient output levels.

D.   efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

A.   greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

When a firm is experiencing economies of scale,

A.   long-run average total cost is minimized.

B.   long-run average total cost is greater than long-run marginal cost.

C.   long-run average total cost is less than long-run marginal cost.

D.   long-run marginal cost is minimized.

B.   long-run average total cost is greater than long-run marginal cost.

For LRATC to decrease, the marginal cost (MC) must be below average total cost (ATC).

Gavin has decided to start his own snow removal business. To purchase the necessary equipment, Gavin withdrew $2,000 from his savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gavin's annual opportunity cost of the financial capital that has been invested in the business?

A.   $60

B.   $280

C.   $340

D.   $660

C.   $340

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

A.   fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

B.   fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

C.   fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

D.   not fall in the short run because firms will exit to maintain the price.

B.   fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

A firm in a competitive market has the following cost structure:

Output	Total cost
0	$5
1	$10
2	$12
3	$15
4	$24
5	$40

If the market price is $16, this firm will

A.   produce four units in the short run and exit in the long run.

B.   produce five units in the short run and exit in the long run.

C.   produce five units in the short run and face competition from new market entrants in the long run.

D.   shut down in the short run and exit in the long run.

C.   produce five units in the short run and face competition from new market entrants in the long run.

How does a competitive market compare to a monopoly that engages in perfect price discrimination?

A.   In both cases, total social welfare is the same.

B.   Total social welfare is higher in the competitive market than with the perfectly price discriminating monopoly.

C.   In both cases, some potentially mutually beneficial trades do not occur.

D.   Consumer surplus is the same in both cases.

A.   In both cases, total social welfare is the same.

Which of the following statements is correct for both a monopolist and a perfectly competitive firm?

i) The firm maximizes profits by equating marginal revenue with marginal cost.

ii) The firm maximizes profits by equating price with marginal cost.

iii) Demand equals marginal revenue.

iv) Average revenue equals price.

A.   i), iii), and iv) only

B.   i) and iv) only

C.   i), ii), and iv) only

D.   i), ii), iii), and iv)

B.   i) and iv) only

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

A.   P > MR and P = MC

B.   ATC = demand and MR = MC

C.   P < MC and demand = ATC

P> ATC and demand > MR

B.   ATC = demand and MR = MC

• P > MR

• P > MC

• P = ATC

When an oligopoly market reaches a Nash equilibrium,

A.   the market price will be different for each firm.

B.   the firms will not have behaved as profit maximizers.

C.   a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

D.   a firm will not take into account the strategies of competing firms.

C.   a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

Barb and Sue are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $5,000. If they both advertise on radio, each will earn a profit of $7,000. If neither advertises at all, each will earn a profit of $10,000. If one advertises on TV and other advertises on radio, then the one advertising on TV will earn $8,000 and the other will earn $3,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $15,000 and the other will earn $2,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $12,000 and the other will earn $4,000. If both follow their dominant strategy, then Barb will

A.   advertise on TV and earn $5,000.

B.   advertise on radio and earn $7,000.

C.   not advertise at all and earn $10,000.

D.   None of the above is correct. Barb and Sue do not have dominant strategies.

A.   advertise on TV and earn $5,000.