Final Exam Econ 102
To maximize profits, the perfectly competitive firm should produce output at
A.
B.
C.
D.
If the price elasticity of demand for a product is equal to -0.5, then a 10 percent decrease in price will increase quantity demanded by
0.5%.
5%.
20%.
0.05%.
The law of supply suggests that the price elasticity of supply is
Positive.
Zero.
Negative.
Unknown.
The cross-price elasticity of demand between Quaker State motor oil and Texaco motor oil is likely to be
Zero.
A small negative number.
A large negative number.
A positive number.
The short-run supply curve for a perfectly competitive firm is the
Segment of the AVC curve lying to the right of the MC curve.
Entire MC curve.
Segment of the MC curve lying below the AVC curve.
Segment of the MC curve lying at and above the AVC curve.
A positive externality or additional social benefit occurs when
The total benefit associated with the consumption of a product exceeds the benefit received by consumers.
Firms earn positive economic profits.
A firm does not bear all of the costs of producing a good or service.
Product differentiation increases the variety of products available to consumers.
Natural monopolies result from
Control over an essential resource.
Extensive economies of scale in production.
Patents and copyrights.
Pricing strategies.
What is the equilibrium price and quantity?
$100 and 60 units.
$300 and 20 units.
$400 and 120 units.
$60 and 100 units.
The price elasticity of demand (based on the midpoint formula) when the price increases from $18 to $20 is
-0.33.
-1.
-3.29.
-1.37.
Private property
Encourages exchange, which promotes market activity and thus economic growth.
Requires that we spend our time protecting our property rather than working.
Does everything indicated in the other choices.
Encourages an equal distribution of income.
Which of the following do economists consider to be capital?
A pair of stockings.
A share of IBM stock.
A construction crane.
A savings account.
One feature of pure monopoly is that the firm is
One of several producers of a product.
A price maker.
A price taker.
A producer of products with close substitutes.
If the price in this market is $4
The market would clear; quantity demanded would equal quantity supplied.
Farmers would not be able to sell all their wheat.
Buyers would want to purchase more wheat than is currently being supplied.
There would be a shortage of wheat.
Which idea is inconsistent with perfect competition?
Price-taking behavior.
Freedom of entry or exit for firms.
A large number of buyers and sellers.
Product differentiation.
What are the two characteristics that differentiate private goods from public goods?
Marginal cost and marginal benefit.
Rivalry and excludability.
Ownership and usage.
Negative externality and positive externality.
The price elasticity of demand is a measure of the
Effect of changes in demand on the price.
Relationship between price and profitability.
Sensitivity of a good’s price to changes in demand.
Responsiveness of buyers of a good to changes in its price.
If the absolute value of the price elasticity of demand for a good is 0.75, the demand for that good is described as
Inferior.
Inelastic.
Elastic.
Normal.
The graphs suggest that in the long run, assuming no changes in the given information,
More buyers will come to the market.
Some firms will exit from this industry.
New firms will enter the industry.
Buyers will leave the industry.
At which point does the marginal cost (MC) equal average variable cost (AVC)?
Point B.
Point D.
Point A.
Point C.
Suppose the consumer preferences for apples increase after a new health study. Which of the following statements shows the change in the market for apples?
The demand curve will shift from D1 to D2.
There will be a change in the quantity demanded from Point a to Point b.
The demand curve will shift from D1 to D3.
There will be a change in the quantity demanded from Point b to Point a.
A pure monopoly will generate an economic profit whenever
Total revenue is greater than the total cost.
Total revenue is less than the total cost.
Total revenue is equal to the total cost.
Price is greater than the average variable cost.
When producers do not have to pay the full cost of producing a product, they tend to
Underproduce the product because of a positive externality.
Overproduce the product because of a negative externality.
Underproduce the product because of a negative externality.
Overproduce the product because of a positive externality.
A pure monopoly may generate economic profits because
Of advertising.
Of rising average fixed costs.
Marginal revenue is constant as sales increase.
Of barriers to entry.
In a situation where externality occurs, the “third party” refers to those who
Trade the product with others outside the nation or community.
Buy the product from others.
Are not directly involved in the transaction or activity.
Produce the product for others.
A firm encountering economies of scale over some range of output will have a
Rising, then falling, then rising long-run average total cost curve.
Rising long-run average total cost curve.
Falling long-run average total cost curve.
Constant long-run average total cost curve.
If the average variable cost is $74 and the total fixed cost is $100 at 5 units of output, then the average total cost at this output level is
$97.
$100.
$91.
$94.
A negative income elasticity of demand indicates that the product
Is an inferior good.
Is a complementary good.
Is a substitute good.
Is a normal good.
The marginal revenue generated by the pure monopoly from selling the third unit of output is
$3.
$6.
$5.
$1.
The marginal product of the 30th input item is
24.
120.
12.
200.
Which of the following is true under conditions of perfect competition?
The market demand curve is perfectly elastic.
Each individual firm as the ability to set its own price.
There are differentiated products.
No single firm can influence the market price.
Which is most likely to be observed in a community where price ceilings are imposed on residential rents?
People moving into the community will have difficulty locating residential space to rent.
Homeowners will reduce their own use of housing space, making more available to others.
Poor people will be able to find adequate housing.
Those whose needs for housing are most urgent will be able to obtain the space they want.
The figure shows three supply curves for wheat. Which of the following would cause the supply of wheat to shift from S1 to S2?
An increase in the price of wheat.
A new tax on wheat production.
An increase in the price of water.
A decrease in the price of water.
Accounting profit equals total revenue minus
Economic costs.
Implicit costs.
Explicit costs.
Economic profits.
Total revenue decreases as the price of a good increases if the demand for the good is
Unitary elastic.
Inelastic.
Perfectly elastic.
Elastic.
Using the regular percentage change formula, what is the price elasticity of demand when price decreases from $9 to $7?
-1.
-1.75.
-1.5.
-2.25.
In moving from combination F to E, the opportunity cost of an additional 2 pies is
2 cupcakes.
20 cupcakes.
56 cupcakes.
25 cupcakes.
If interest rates are lowered
People are more likely to save their money in banks.
People are not affected by interest rates being lowered, only when interest rates are raised.
Entrepreneurs are less likely to borrow money.
Entrepreneurs are more likely to expand a business by borrowing money.
A recurring theme in economics is that people
Have unlimited resources but limited economic wants.
Have limited economic wants and limited resources.
Have unlimited economic wants but limited resources.
Can increase resources by limiting their economic wants.
Fixed costs of production in the short-run
Cannot be reduced by producing less output.
Are low in proportion to variable costs in the short-run.
Increase as the firm produces more output.
Are a function of the level of variable costs.