Intermediate Microeconomics

A Rolling Stones song goes: "You can't always get what you want." This echoes an important theme from microeconomics. Which of the following statements is the best example of this theme?

Consumers must make the best purchasing decisions they can, given their limited incomes.

The problem of scarcity means that people face trade-offs. Which of the following trade-offs are the concern of microeconomics?

- Trade-offs faced by consumers in the purchase of goods
- Trade-offs faced by workers between work and leisure
- Trade-offs faced by firms in what goods to produce

The key assumption underlying the theory of the firm is that:

Firms are assumed to maximize profits

Firms face trade-offs in production, including decisions related to:

- which products to produce
- how much of a particular product to produce
- the best way to produce a given amount of output

Use the following two statements to answer this question:

I. A market is a collection of buyers and sellers that, through actual or potential interactions, determine the price for a product or set of products

II. An industry is a collection of markets for similar or closely related products

I is true, and II is false

In a perfectly competitive market

no single buyer or seller can significantly affect the market price

Boeing Corporation and Airbus Industries are the only two producers of long-range commercial aircraft. This market is not perfectly competitive because

each company can significantly affect prices

Which of the following markets are competitive enough to be treated as perfectly competitive?

- Agricultural markets
- Copper
- Coal, iron, tin, and lumber

Suppose you are in charge of product pricing and marketing strategy for pharmaceutical company. You will have greater ability to independently set prices for your product if

there are no close substitutes for your product

To arbitrage a price difference between two markets, you should

buy in the low-price market and sell in the high-price market

A supply curve reveals

the quantity of output that producers are willing to produce and sell at each possible market price

When an industry's raw materials costs increase, other things remaining the same,

the supply curve shifts to the left

Sugar can be refined from sugar beets. When the price of those beets falls,

the supply curve for sugar would shift right

Which of the following would cause a shift to the right of the supply curve for gasoline?
I. A large increase in the price of public transportation
II. A large decrease in the price of automobiles
III. A large reduction in costs of producing gasoline

A large in costs of producing gasoline

To protect the cod fishery off the northeast coast of the U.S., the federal government may limit the amount of fish that each boast can catch in the fishery. The result of this public policy is to:

shift the cod supply curve to the left

The battery packs used in electric and hybrid automobiles are one of the largest cost components for manufacturing these cars. As the price of these batteries decline, we expect that the

supply curve for electric and hybrid autos will shift rightward

Plastic and steel are substitutes in the production of body panels for certain automobiles. If the price plastic increases, with other things remaining the same, we would expect:

the demand curve for steel to shift to the right

Which of the following would shift the demand curve for new textbooks to the right?

An increase in the number of students attending college

Assume that steak and potatoes are complements. When the price of steak goes up, the demand curve for potatoes

shifts to the left

As long as the actual market price exceeds the equilibrium market price, there will be

downward pressure on the market price

The demand for books is : Qd = 120 - P

The supply of books is : Qs = 5P

What are the equilibrium price of books and quantity of books sold?

$20 and 100 books sold

The demand for books is : Qd = 120 - P

The supply of books is : Qs = 5P

If P = $15, which of the following is true?

There is a shortage equal to 30

Which of the following would cause an unambiguous decrease in the real price of Microchips?

A shift to the right in the supply curve for Microchips and a shift to the left in the demand curve for Microchips.

Which of the following will cause the price of beer to rise?

I. A shift to the right in the demand curve for beer.

II. A shift to the left in the supply curve of beer.

Both answers are correct

By 2025, automobile market analysts expect that the demand for electric autos will increase as buyers become more familiar with the technology. However, the costs of producing electric autos may increase because of higher costs for inputs (e.g., rare earth elements), or they may decrease as the manufacturers learn better assembly methods (i.e., learning by doing). What is the expected impact of these changes on the equilibrium price and quantity for electric autos?

We cannot form any unambiguous expectations for either price or quantity.

Elasticity measures

the percentage change in one variable in response to a one percent increase in another variable

Along any downward-sloping straight-line demand curve

the price elasticity varies, but the slope is constant

The cross-price elasticity of demand refers to

the percentage change in the quantity demanded of one good resulting from a 1-percent increase in the price of another good

If two goods are substitutes, the cross-price elasticity of demand must be

positive

The cross-price elasticity of demand for peanut butter with respect to the price of jelly is -0.3. If we expect the price of jelly to decline by 15%, what is the expected change in the quantity demanded for peanut butter?

+ 4.5%

For U.s. consumers, the income elasticity of demand for iPhones is 1.1. If the economy enters a recession next year and consumer income declines by 2.5%, what is the expected change in the quantity of iPhones demanded next year?

- 2.75%

Suppose the market price for Tesla model 3 changes, and we move from point A to point B on the demand curve. If the price elasticity of Tesla demand was -0.3 at point A and -0.4 at point B, what is a plausible value for the arc elasticity of demand for Tesla Model 3 cars between points A and B?

-0.35

The monthly supply of Apple laptops is given by the equation 15,000 + 43.75 P. At a price of $800, what is the price elasticity of supply?

0.7

Due to capacity constraints, the price elasticity of supply for most products is

greater in the long run than the short run

In the long run, new firms can enter an industry and so the supply elasticity tends to be

more elastic than in the short run

What happens if price falls below the market clearing price?

Quantity demanded increases, quantity supplied decreases, and a shortage results

The slope of an indifference curve reveals

the marginal rate of substitution of one good for another good

Refer to table below

Food Clothing

A 6 3

B 8 5

C 5 8

If preferences satisfy all four of the basic assumptions

B is preferred to A

Suppose your utility function for food (F) and clothing (C) is u(F,C) = F + 4C. If you reduce your clothing consumption by 2 units, how much do you have to increase your food consumption in order to maintain the same utility level?

8 units

A consumer has $100 per day to spend on Starbucks coffee, which has a unit price of $7, and McDonalds burger, which has a unit price of $15. What is the slope of the budget line if coffee is on the horizontal axis and burger is one the vertical axis?

- 7 / 15