Economics 110 Midterm #2 Practice Multiple Choice Qs Spring 2014

Transcription

1 Midterm #2 Practice Multiple Choice Questions: Elasticity is a. a measure of how much buyers and sellers respond to changes in market conditions. b. the study of how the allocation of resources affects economic well-being. c. the maximum amount that a buyer will pay for a good. d. the value of everything a seller must give up to produce a good. When studying how some event or policy affects a market, elasticity provides information on the a. government expenditures associated with the policy. b. costs and benefits of the effect. c. allocative efficiency of the effect. d. direction and magnitude of the effect. A good will have a more elastic demand, the a. greater the availability of close substitutes. b. more broad the definition of the market. c. shorter the period of time. d. more it is regarded as a necessity. A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it a. maximizes both the total revenue for firms and the quantity supplied of the product. b. maximizes the combined welfare of buyers and sellers. c. minimizes costs and maximizes output. d. minimizes the level of welfare payments. The maximum price that a buyer will pay for a good is called the a. cost. b. willingness to pay. c. equity. d. efficiency.

2 Refer to Table above. If the price of the product is $15, then who would be willing to purchase the product? a. Lori b. Lori and Audrey c. Lori, Audrey, and Zach d. Lori, Audrey, Zach, and Calvin Refer to Table above. Which of the following is not true? a. At a price of $9.00, no buyer is willing to purchase Vanilla Coke. b. At a price of $5.50, Megan is indifferent between buying a case of Vanilla Coke and not buying one. c. At a price of $4.00, total consumer surplus in the market will be $9.00. d. All of the above are correct. Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit. a. (i) and (ii) only b. (ii) and (iii) only c. (iii) only d. (i), (ii), and (iii) Trevor s Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor s Tire Company s total costs are a. $7,500. b. $25,000. c. $32,500. d. $67,500.

3 Referring to table above. The marginal product of the third worker is a. 230 units. b. 100 units. c. 77 units. d. 60 units. Refer to Above Figure. The graph illustrates a typical a. total-cost curve. b. production function. c. production possibilities frontier. d. marginal product of labor curve.

4 If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then a. a one-unit increase in output will increase the firm's profit. b. a one-unit decrease in output will increase the firm's profit. c. total revenue exceeds total cost. d. total cost exceeds total revenue. Refer to Figure above. The firm s short-run supply curve is its marginal cost curve above a. $1. b. $3. c. $4.50. d. $6.30. A market is competitive if (i) firms have the flexibility to price their own product. (ii) each buyer is small compared to the market. (iii) each seller is small compared to the market. a. (i) and (ii) only b. (i) and (iii) only c. (ii) and (iii) only d. (i), (ii), and (iii)

5 Which of the following statements is correct? a. Both a competitive firm and a monopolist are price takers. b. Both a competitive firm and a monopolist are price makers. c. A competitive firm is a price taker, whereas a monopolist is a price maker. d. A competitive firm is a price maker, whereas a monopolist is a price taker. Which of the following is not an example of a barrier to entry? a. Mighty Mitch s Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world. b. A pharmaceutical company obtains a patent for a specific high blood pressure medication. c. A musician obtains a copyright for her original song. d. An entrepreneur opens a popular new restaurant. Which of the following is an example of a barrier to entry? a. Dawn charges a higher price than her competitors for her landscape-architecture services. b. Rhianna obtains a copyright for a short story that she wrote and published. c. Debbie offers free samples of her chocolate chip cookies to attract new customers. d. Bev charges a lower price than her competitors for her desktop-publishing services. Refer to the above figure. Which panel could represent the demand curve facing a soybean farmer? a. Panel A b. Panel B c. Panel C d. Panel D

6 Refer to the above figure. If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to a. remain unchanged. b. decrease. c. increase as long as the new level of output is at least Q2. d. increase as long as the new level of output is at least Q1.