Econ Finals

Question 1

In the short run:

TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate

TVC will increase for a time at an increasing rate, but then beyond some point will increase at a diminishing rate

TVC will increase by the same absolute amount for each additional unit of output produced

once cannot generalize concerning the behaviour of TVC as output increases

Answer 1

TVC will increase for a time at a diminishing rate, but then beyond some point will increase at an increasing rate

Question 1

Which is most likely to be a natural monopoly?

aircraft manufacturing
auto production
electrical utilities
steel companies

Answer 1

electrical utilities

Question 2

If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will

be unaffected
shift to the left
become more elastic
shift to the right

Answer 2

shift to the right

Question 3

the budget line shows:

the amount of product A which a consumer is willing to give up to obtain one more unit of product B

all possible combinations of two goods which can be purchased, given money income and the prices of the goods

all equilibrium points on an indifference map

all possible combinations of two goods which yield the same level of utility to the consumer

Answer 3

all possible combinations of two goods which can be purchased, given money income and the prices of the goods

Question 4

A consumer is maximizing her utility with a particular money income when:

the total utility derived from each product consumed is the same

MUa/Pa = MUb/Pb = MUc/Pc = … = MUn/Pn

MUa = MUb = MUc = … = MUn

Pa = Pb = Pc = … = Pn

Answer 4

MUa/Pa = MUb/Pb = MUc/Pc = … = MUn/Pn

Question 5

A positive statement is one which is:

derived by induction
derived by deduction
subjective and is based on a value judgement
objective and is based on facts

Answer 5

objective and is based on facts

Question 6

Marginal revenue is the:

Answer 6

change in total revenue associated with the sale of one more unit of output

Question 7

Diminishing marginal utility explains why:

the income effect exceeds the substitution effect
the substitution effect exceeds the income effect
supply curves are upsloping
demand curves are downsloping

Answer 7

demand curves are downsloping

Question 8

The profit maximizing behaviour for a price-taking firm requires it to operate where:

Answer 8

P=MC=AFC

Question 9

Diseconomies of scale means that:

a firm’s long run average total cost curve is rising
a firm’s long run average total cost curve is declining
the advantages of specialization are being more fully realized
a given increase in inputs results in a more than proportionate increase in output

Answer 9

a firm’s long run average total cost curve is rising

Question 10

If price of normal good X rises, the income:

and substitution effects will both induce the consumer to buy less of X
and substitution effects will both induce the consumer to buy more of X
effect will induce the consumer to buy more of X and the substitution effect will induce him to buy less
effect will induce the consumer to buy less of X and the substitution will induce him to buy more

Answer 10

effect will induce the consumer to buy more of X and the substitution effect will induce him to buy less

Question 11

Refer to the above graph, which shows the market for chicken where D1 and D2 represent different demand curves. A change from E1 to E2 is most likely to result from:

a decrease in consumer incomes
an increase in the wages of chicken workers
an increase in the price of beef products
improved technology in the chicken industry

Answer 11

a decrease in consumer incomes

Question 12

Public choice economists:

analyze the incidence of taxes

are also known as Keynesian economists

use the tools of economics to analyze decision making in the public sector

are economists employed by federal, provincial, and local governments

Answer 12

use the tools of economics to analyze decision making in the public sector

Question 13

Marginal revenue for a perfectly competitive firm:

is equal to price
is less than price
is greater than price
may be either greater or less than price

Answer 13

is equal to price

Question 14

Marginal utility is the:

sensitivity of consumer purchases of a good to changes in the price of that good

change in total utility realized by consuming one more unit of a good

change in total utility realized by onsuming another unit of a good divided by the change in the price of that good

total utility associated with the consumption of a certain number of units
of a good divided by the number of units consumed

Answer 14

change in total utility realized by consuming one more unit of a good

Question 15

Refer to the graph above. In the short run, this monopolistically competitive firm will set price at:

65 and produce 45 units of output
65 and 35
50 and 35
50 and produce 50 units of output

Answer 15

50 and produce 50 units of output

Question 16

Refer to the above supply and demand graph for a public good. Point C on the graph shows where the:

(supply and demand x marks the spot)

Answer 16

marginal benefit equals the marginal cost of the public good

Question 17

For most producing firms:

marginal cost rises as output is carried to a certain level, and then begins to decline
total costs rise as output is carried to a certain level, and then begin to decline
ATC decline as output is carried to a certain level, and then begin to rise
ATC rise as output is carried to a certain level, and then begin to decline

Answer 17

ATC decline as output is carried to a certain level, and then begin to rise

Question 18

the substitution effect indicates that:

a decline in money income will cause the consumer to buy more inferior goods and fewer superior goods

consumer equilibrium can only be achieved when the consumer is buying substitute goods

when the price of a product falls, the lower price will induce the consumer to buy more of that product at the expense of other products

when the price of a product falls, a consumer will be able to buy more of it with a specific money income

Answer 18

when the price of a product falls, the lower price will induce the consumer to buy more of that product at the expense of other products

Question 19

A normal good is defined as one:

whose amount demanded will increase as its price decreases

whose amount demanded will increase as its price increases

whose demand curve will shift leftward as incomes rise

the consumption of which varies directly with incomes

Answer 19

the consumption of which varies directly with incomes

Question 20

Price discrimination refers to:

selling a given product for different prices at two different points in time
any price above that which is equal to a minimum ATC
the selling of a given product at different prices which do not reflect cost differences
the difference between the prices a perfect competitive seller and a purely monopolistic seller would charge

Answer 20

the selling of a given product at different prices which do not reflect cost differences

Question 21

A monopolist will maximize profits by producing that output at which marginal cost is equal to:

average total cost
marginal revenue
average variable cost
average cost

Answer 21

marginal revenue

Question 22

In comparing the changes in TC and TVC associated with an additional unit of output, we find that:

the change in TVC is equal to MC< while the change in TC is equal to TFC
the change in TC exceeds the change in TVC
the change in TVC exceeds the change in TC
both are equal to MC

Answer 22

both are equal to MC

Question 23

The economic perspective entails:

rational behaviour by individuals and institutions
a comparison of marginal benefits and marginal costs in decision and making
the altering of behaviour when marginal benefits and marginal costs change
all of the above

Answer 23

a comparison of marginal benefits and marginal costs in decision and making

Question 24

assume a firm closes dowm in the short run and produces no output. under these conditions: TVC is positive but TFC and TC are zero TFC is positive, but TVC and TC are zero TFC and TC are positive, but TVC is zero TFC, TVC, and TC will all be positive

Answer 24

TFC and TC are positive, but TVC is zero

Question 25

a one-firm industry is known as: monopolistic competition oligopoly pure monopoly perfect competition

Answer 25

pure monopoly

Question 26

The MR=MC rule applies: in the short run, but not in the long run in the long run, but not in the short run in both the short run and the long run only to a perfectly competitive firm

Answer 26

in both the short run and the long run

Question 27

The key economic concept that serves as the basis for the study of economics is:

Answer 27

scarcity

Question 28

Which of the figures correctly depicts a firm which does not experience diseconomies of scale? graph A graph B graph C graph D

Answer 28

graph A

Question 29

Refer to the diagram above. At the profit maximizing output, total variable cost is equal to: 0AHE 0CFE 0BGE ABGH

Answer 29

0CFE

Question 30

The law of diminishing marginal utility states that:

Answer 30

beyond some point additional units of a product will yield less and less extra satisfaction to a consumer

Question 31

One of the major barriers to entry under monopoly arises from: the availability of close substitutes for a product ownership of essential resources the price taking ability of the firm diseconomies of scale

Answer 31

ownership of essential resources

Question 32

Refer to the diagram above. At the profit-maximizing output, total revenue will be: 0AHE 0BGE 0CFE ABGE

Answer 32

0AHE

Question 33

A negative externality or external cost occurs when: firms fail to achieve allocative efficiency firms fail to achieve productive efficiency price exceeds marginal cost the total cost of producing a good exceeds the costs borne by the producer

Answer 33

the total cost of producing a good exceeds the costs borne by the producer

Question 34

Which of the following statements is incorrect? a monopolist's 100 percent market share ensures economic profits the monopolist's marginal revenue is less than price of any given output greater than 1 a monopolistic firm produces a product having no close substitutes a monopolist's demand curve is the industry demand curve

Answer 34

a monopolist's 100 percent market share ensures economic profits

Question 35

Marginal analysis means that decision-makers compare the extra benefits with the extra costs of a specific choice T/F

Answer 35

True

Question 36

Clearly defined property rights and liability rules reduce negative costs by: threatening the perpetrators with lawsuits shifting the perpetrators market supply curve rightward shifting the perpetrators market demand curve leftward creating a market for externality rights

Answer 36

creating a market for externality rights

Question 37

An "increase in the quantity demanded" means that: given supply, the price of the product can be expected to decline price has declined and consumers therefore want to purchase more of the product the demand curve has shifted to the right the demand curve has shifted to the left

Answer 37

price has declined and consumers therefore want to purchase more of the product

Question 38

A monopolistically competitive's firm's marginal revenue curve: is downward sloping and coincides with the demand curve coincides with the demand curve and is parallel to the horizontal axis is downward sloping and lies below the demand curve does not exist because the firm is a "price maker"

Answer 38

is downward sloping and lies below the demand curve

Question 39

In the diagram above, curves 1,2, and 3 represent the average, marginal and total product curves respectively marginal, average, total product total, average, and marginal product total, marginal, and average product

Answer 39

marginal, average, total product

Question 40

Which of the following would not shift the demand curve for beef? a widely publicized study which indicates beef increases one's cholesterol a reduction in the price of cattle feed an effective advertising campaign by pork producers a change in the incomes of beef consumers

Answer 40

a reduction in the price of cattle feed

Question 41

An industry comprised of a small number of firms, each of which considers the potential reaction sof its rivals in making price-output decisions is called: monopolistic competition oligopoly monopoly perfect competition

Answer 41

oligopoly

Question 42

in a perfectly competitive industry: there will be no economic progits in either the short run or the long run economic profits may persist in the long run if consumer demand is strong and stable there may be economic profits in the short run but not in the long run there may be economic profits in the long run, but not in the short run

Answer 42

there may be economic profits in the short run but not in the long run

Question 43

In the long-run average total cost curve the: movement from A to B reflects diseconomies of scale Movement from B to C reflects diseconomies of scale

Answer 43

Movement from B to C reflects diseconomies of scale

Question 43

Monopolists are said to be allocatively inefficient because: they produce where MR > MC at the profit-maximizing output price is greater than AVC they produce only the type of product they desire and do not consider the consumer at the profit-maximizing output the marginal benefit to society of additional output is greater than the marginal cost to society

Answer 43

at the profit-maximizing output the marginal benefit to society of additional output is greater than the marginal cost to society

Question 43

Diseconomies of scale arise primarily because: the short run average total cost curve rises when marginal product is increasing of the difficulties involved in managing and coordinating a large business enterprise firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available beyond some point marginal product declines as additional units of a variable factor of production (labour) are added to a fixed factor of production

Answer 43

of the difficulties involved in managing and coordinating a large business enterprise

Question 44

Refer to the above graph of the representative firm in monopolistic competition. THe long-run equilibrium price and output for this firm will be: P1 and Q1 P2 and Q2 P3 and Q3 P4 and Q1

Answer 44

P4 and Q1

Question 44

In perfect competition, the average revenue of a firm always equals

Answer 44

average total cost

Question 44

If a technological advance increases a firm's labour productivity, we would expect its average total cost curve to rise average total cost curve to fall total cost curve to rise average total cost curve to be unaffected

Answer 44

average total cost curve to fall

Question 44

A firm finds that at its MR=MC output, TC=$1000, TVC=$800, TFC=$200, and total revenue is $900. This firm should: shut down in the short run produce because the resulting loss is less than its TFC produce because it will realize an economic profit liquidate its assets and go out of business

Answer 44

produce because the resulting loss is less than its TFC

Question 45

Which statement is correct? The income effect for a change in the price of any normal good offsets the substitution effect The income effect shows a decrease in real income is associated with a decrease in the price of a good The income effect of a normal good will reinforce its substitution effect The substitution effect measures the increase in the quantity demanded of a good because of a decrease in the price of all other goods

Answer 45

The income effect for a change in the price of any normal good offsets the substitution effect

Question 46

Refer to the diagram above for a monopolist. Monopoly output will be: between f and g h g f

Answer 46

f

Question 47

Refer to the diagram above for a monopolist. Monopoly "price" will be e c b a

Answer 47

b

Question 48

The graph below shows a profit-maximizing perfectly competitive firm operating in the short run. Which area in the graph represents the amount the firm can save by continuing to produce in the short run rather than closing down immediately? 0beg 0cdg acdf abef

Answer 48

0beg

Question 49

The profit-maximizing output of a monopoly is economically inefficient because in equilibrium: price equals minimum average total cost marginal revenue equals marginal cost marginal cost exceeds price price exceeds marginal cost

Answer 49

price exceeds marginal cost

Question 50

A market for pollution rights can be expected to: eliminate all pollution produce a shortage of pollution encourage potential polluters to increase emissions provide potential polluters with a monetary incentive to reduce emissions

Answer 50

provide potential polluters with a monetary incentive to reduce emissions

Question 51

Which is a characteristic of a public good:

Answer 51

non-rivalry and non-excludability

Question 52

Refer to the budget line shown in the diagram below. If the consumer's money income is $20, the prices of C and D cannot be determined price of C is 2 and the price of D is 4 consumer can obtain a comnination of 5 units of both C and D price of C is 4 and the price of D is 2

Answer 52

price of C is 4 and the price of D is 2

Question 53

A perfectly competitive firm's short run supply curve is: the upward sloping portion of its marginal cost curve the upward sloping portion of its average variable ocst curve its marginal cost curve above average variable cost its average total cost curve

Answer 53

its marginal cost curve above average variable cost

Question 54

The demand curve of a perfectly competitive firm is: (elasticity)

Answer 54

perfectly elastic

Question 55

If production is occurring where MC exceeds price, the perfectly competitive firm will: maximize profit, but resources will be underallocated to the product maximize profit, but resources will be overallocated to the product fail to maximize profit and resources will be overallocated to the prodcut fail to maximize profit and resources will be underallocated to the product

Answer 55

fail to maximize profit and resources will be underallocated to the product

Question 56

a market in which a single seller is required for efficient producdtion is called a regulated industry natural monopoly oligopoly competitive market

Answer 56

natural monopoly

Question 57

Economic profit is: total revenues minus fixed costs total revenues from sales minus the cost of materials total revenues minus the opportnity cost of the inputs gross profit mius selling and operating expenses

Answer 57

total revenues minus the opportnity cost of the inputs

Question 58

"Minimum efficient scale" occurs at some output greater than Q3 is achieved at Q1 is achieved at Q3 cannot be identified in this diagram

Answer 58

is achieved at Q1

Question 59

Which statement is correct? in the short run the plant capacity is variable in the long run the plant capacity is variable in the long run the plant capacity is fixed in the short run all factors of production are variable

Answer 59

in the long run the plant capacity is variable

Question 60

If consumer incomes increase, the demand for product X: will necessarily remain unchanged may shift either to the right or left will necessarily shift to the right will necessarily shift to the left

Answer 60

may shift either to the right or left

Question 61

The study of economics exists because: government interferes with the efficient allocation of scarce resources resources are scarce in relation to human material wants the market system is an obstacle to the efficient use of plentiful resources to satisfy constrained wants resources are overly abundant as compared to wants; thus an allocation problem exists

Answer 61

resources are scarce in relation to human material wants

Question 62

Cost-benefit analysis attempts to: compare the real worth, rather than the market values, of various goods and services compare the relative desirability of alternative distributions of income determine whether it is better to cut government expenditures or reduce taxes compare the benefits and costs associated with any economic project or activity

Answer 62

compare the benefits and costs associated with any economic project or activity

Question 63

An inferior good is: one whose demand curve will shift righward as income rise one whose price and quantity demanded varies directly one which has not been approved by the federal Ministry of Agriculture one whose demand curve will shift leftward as income rise

Answer 63

one whose demand curve will shift leftward as income rise

Question 64

Oligopoly is difficult to analyze primarily because: the number of firms is too large to make collusion understandable the price and output decisions of any one firm depend on the reactions of its rivals output may be either homogenous or differentiated neither allocative nor productive efficiency is achieved

Answer 64

the price and output decisions of any one firm depend on the reactions of its rivals

Question 65

Refer to the above diagram. The highest price that buyers will be wiling and able to pay for 100 units of this product is: $30 $60 $40 $20

Answer 65

$60

Question 66

Refer to the above diagram. A price of $20 in this market will result in: equilibrium a shortage of 50 units a surplus of 50 units a shortage of 100 units

Answer 66

a shortage of 100 units

Question 67

The moral hazard problem arises primarily because of individual bargaining negative externalities asymmetric information poorly defined property rights

Answer 67

asymmetric information

Question 68

The monopolistic competitionmodel predicts that: allocative efficiency will be achieved productive efficiency will be achieved firms will engage in nonprice competition firms will realize economic profits in the long run

Answer 68

firms will engage in nonprice competition

Question 69

A constant-cost industry is one in which: resource prices fall as output is increased resource prices rise as output is increased resource prices remain unchanged as output is increased small and large levels of output entail the same total costs

Answer 69

resource prices remain unchanged as output is increased

Question 70

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be: taxed prohibited subsidized left alone

Answer 70

subsidized

Question 71

Refer to the diagram above. To maximize profits or minimize losses this firm should: E units and charge price C. E units and charge price A. M units and charge price N. L units and charge price LK.

Answer 71

E units and charge price A.

Question 72

Refer to the diagram above. In equilibrium total revenue will be: NM times OM. 0AJE. 0EGC 0EHB

Answer 72

0AJE

Question 73

The MR = MC rule can be restated for a perfectly competitive seller as P - MC because: each additional unit of output adds exactly its price to total revenue. the firm's average revenue curve is downward sloping. the market demand curve is downward sloping. the firm's marginal revenue and total revenue curves will coincide.

Answer 73

each additional unit of output adds exactly its price to total revenue.

Question 74

In perfect competition, the demand for the product of a single firm is: between zero and one. perfectly inclastic. perfectly elastic. greater than one.

Answer 74

perfectly elastic.

Question 75

Other things equal, the provision of a per unit subsidy for a product will: increase its supply. increase its price. decrease the quantity sold. decrease its demand.

Answer 75

increase its price.

Question 76

If the price of labour or some other variable factor of production decreased, the: AVC curve would shift upward. AFC curve would shift downward. AFC curve would shift upward. MC curve would shift downward.

Answer 76

MC curve would shift downward.

Question 77

Which of the following would be evidence of price discrimination at a local bar called the Stabilizer? changing higher prices than under perfect competition charging higher prices for imported than for domestic beer charging lower prices to customers wearing Stabilizer T-shirts charging lower prices to people who bring their own glasses and pitchers

Answer 77

changing higher prices than under perfect competition

Question 78

If the variable costs of a profit-maximizing monopolist decline, the firm should: produce more output and charge a higher price. produce more output and charge a lower price. reduce both output and price. raise both output and price.

Answer 78

produce more output and charge a lower price.

Question 79

Given the graph below, the competitive firm's supply curve is the: MC curve above F. MC curve above G. MC curve above H. MC curve above J.

Answer 79

MC curve above G.

Question 80

Consumer demand for digital video dise (DVDs) has increased over time because the price ofDVD players has: decreased, and DVDs and DVD players are substitute goods. decreased, and DVDs and DVD players are complementary goods. increased, and DVDs and DVD players are substitute goods. increased, and DVDs and DVD players are complementary goods.

Answer 80

decreased, and DVDs and DVD players are substitute goods.

Question 81

Competition means that: sellers can cause artificial product scarcities and thereby manipulate market price. there are large numbers of independently acting buyers and sellers in each market. a given product can be purchased at a number of different prices. there is more than one seller in a market.

Answer 81

there are large numbers of independently acting buyers and sellers in each market.

Question 82

Refer to the above diagram for a perfectly competitive producer. The firm will produce at a loss at all prices: above P1 above P3 above P4 between P2 and P3

Answer 82

between P2 and P3

Question 83

Average revenue is: total revenue minus total cost. marginal revenue minus marginal cost. marginal revenue divided by the quantity of output. total revenue divided by the quantity of output.

Answer 83

total revenue divided by the quantity of output.

Question 84

The price ratio of the two products is the: marginal rate of substitution. slope of the budget line. point of tangency for equilibrium. clasticity of demand for the two products

Answer 84

slope of the budget line.

Question 85

Which of the following statements is correct? Private goods yield direct benefits to the purchaser and are financed by government Public goods yeld widespread external benefits and are purchased by government Public goods are bought voluntarily out of private incomes and yield no significant external benefits. extermal benefire bought voluntarily out of private incomes and yield widespread external benefits.

Answer 85

Public goods yeld widespread external benefits and are purchased by government

Question 86

In the long run: all costs are variable costs. all costs are fixed costs. variable costs equal fixed costs. fixed costs are greater than variable costs.

Answer 86

all costs are variable costs.

Question 87

When the economist says that material wants are insatiable, this means that: economic resources are valuable only because they can be used to produce consumer goods. economic resources - land, labour, capital, and entrepreneurial ability - are scarce. these wants are virtually unlimited and therefore incapable of complete satisfaction. the structure of consumer demand varies from time to time and from country to country.

Answer 87

economic resources - land, labour, capital, and entrepreneurial ability - are scarce.

Question 88

The fact that a perfectly competitive firm's total revenue curve is linear and upward sloping to the right impliss taso product price increases as output increases. product price decreases as output increases. product price is constant at all levels of output. marginal revenue declines as more output is produced.

Answer 88

product price is constant at all levels of output.

Question 89

When a consumer is maximizing total utility, the average utility from each dollar spent is the same. total utility cannot be increased by reallocating expenditures among various products. the total utility obtainable from each product is at a maximum. the marginal utility of the last unit of each product purchased is zero.

Answer 89

total utility cannot be increased by reallocating expenditures among various products.

Question 90

If the short-run average variable cost of production for a firm is decreasing, then it follows that: average variable cost must be above average fixed cost. marginal cost must be below average variable cost. average fixed cost must be constant. marginal cost must be decreasing.

Answer 90

marginal cost must be decreasing.

Question 91

Refer to the diagram. Diseconomies of scale: begin at output Qi. occur over the Q1Q3, range of output. begin at output Q3. are in evidence at all output levels.

Answer 91

begin at output Q3.

Question 92

There is a shortage in a market for a product when: the increase in supply is greater than the increase in demand. the increase in demand is greater than the increase in supply. quantity demanded is less than quantity supplied. quantity demanded is greater than quantity supplied.

Answer 92

quantity demanded is greater than quantity supplied.

Question 93

A market is in equilibrium: provided there is no surplus of the product. at all prices above that shown by the intersection of the supply and demand curves. if the amount producers want to sell is equal to the amount consumers want to buy. whenever the demand curve is downsloping and the supply curve is upsloping.

Answer 93

if the amount producers want to sell is equal to the amount consumers want to buy.

Question 94

The inefficiency brought about by monopoly is referred to as: price discrimmination reduction in output through government regulation deadweight loss monopoly's gain

Answer 94

price discrimmination