Reference no: EM131884952

Assignment: Review of Microeconomics

Choose the right answers for the question. There is only one correct answer to each question

1. Which of the following topics would most likely be studied in a Microeconomics course?
a. The rate of change in the price of long distance telephone service.
b. The growth rate of national output.
c. The national level of unemployment.
d. The rate of change in the average price of all goods and services purchased by consumers.

2. Which of the following topics would least likely be studied in a Microeconomics class?
a. The price of automobiles.
b. The wages of automobile workers.
c. The quantity of automobiles sold.
d. The wages of all workers in the nation.

3. Suppose that vendors sell pretzels outside the football stadium for 50 cents each while pretzels sell for $2 each inside the stadium during a game. Arbitrage would involve
a. buying pretzels inside the stadium and eating them outside the stadium.
b. buying pretzels inside the stadium and selling them outside the stadium.
c. buying 4 pretzels outside the stadium for every 1 pretzel you buy inside the stadium.
d. buying pretzels outside the stadium and selling them inside the stadium.

4. The difference between the market for automobiles and the automobile industry is that the market consists of all buyers and sellers while the industry consists of
a. only those buyers who use automobiles for work-related activities.
b. only those buyers and sellers of industrial equipment like forklifts.
c. only the sellers of automobiles.
d. There is no difference between a market and an industry.

5. If the nominal price of gasoline rises more than the nominal prices of all other goods and services, then
a. the real price of gasoline definitely increases.
b. the real price of gasoline definitely decreases.
c. the change in the real price of gasoline cannot be determined without further information.
d. the real price of gasoline will exceed the nominal price of gasoline.

6. If the nominal price of gasoline rises, then
a. the real price of gasoline definitely increases.
b. the real price of gasoline definitely decreases.
c. the change in the real price of gasoline cannot be determined without further information.
d. the real price of gasoline will exceed the nominal price of gasoline.

7. If the nominal price of gasoline is unchanged while the nominal prices of all other goods and services fall, then
a. the real price of gasoline definitely increases.
b. the real price of gasoline definitely decreases.
c. the real price of gasoline is unchanged.
d. the change in the real price of gasoline cannot be determined without further information.

8. If you know that the real price of gasoline fell during a particular time period, then it must be true that
a. the nominal price of gas fell during that time period.
b. the CPI rose during that time period.
c. if the nominal price of gasoline rose, the CPI rose by a greater percentage.
d. if the nominal price of gasoline fell, the CPI fell by a greater percentage.

9. In 1983, Professor James was hired at an annual salary of $25,000. In 1999, his annual salary is $50,000. Based on a 1999 CPI of 170 (1983=100), the professor's real salary has
a. doubled.
b. decreased by about 30%.
c. increased by almost 20%.
d. increased by about 70%.

10. In 1996, George earned an hourly wage of $12. In 1999, George earned an hourly wage of $12.91. Based on a CPI of 158 for 1996 and a CPI of 170 for 1999 (1983=100), the change in George's real hourly wage
a. was negative from 1996 to 1999.
b. was positive from 1996 to 1999.
c. was zero from 1996 to 1999.
d. cannot be determined unless one knows the base year for the CPI.

11. The Clevons Corporation has a goal of setting the nominal price of its product in such a way as to keep the real price the same as it was when the company started in 1970. In 1970, the company charged $1.00 each for its product and the CPI was 38.8 (1983=100). If the CPI in 1999 was 170, then the price of the product in 1999 should have been
a. $4.38.
b. $1.70.
c. $1.31.
d. $1.00.

12. In 1930, Adam would spend 10 cents for a ticket to go to the movies. Today, a ticket to the movies costs $4. Adam feels that he is paying too much at the movies. You could console him that the real price of a movie ticket is not higher now than it was in 1930 as long as
a. the CPI increased by more than 390% since 1930.
b. the CPI increased by more than 3,900% since 1930.
c. the CPI today is 400 with 1930 =100.
d. the CPI is higher today than it was in 1930.

13. In 1983, Pete purchased a 13" television set for $150. In 1999, a 13" television set could be purchased for $75. Knowing that the 1999 CPI is greater than 100 and the CPI equals 100 for 1983, one can conclude that the change in the real price of the 13" television is
a. negative.
b. positive.
c. zero.
d. impossible to estimate without knowing the value of the CPI for 1999.
14. A rightward shift of the demand curve for computer programmers will result in a
a. shift in the supply curve for programmers and an increase in the price of computer programs.
b. movement along the supply curve for computer programs.
c. movement along the supply curve for computer programmers and a shift in the supply curve for computer programs.
d. movement along the supply curve for programmers and a decrease in the price of computer programs.

15. As the price of oranges rises,
a. the quantity demanded for oranges increases.
b. the demand curve for oranges shifts to the right.
c. the quantity demanded for oranges decreases.
d. the demand curve for oranges shifts to the left.

16. As the price of oranges rises,
a. the quantity demanded for oranges increases.
b. the demand curve for grapefruit shifts to the right.
c. the quantity demanded for grapefruit decreases.
d. the demand curve for oranges shifts to the right.

17. As the price of automobiles rises,
a. the demand curve for bicycles will shift to the right.
b. the demand curve for gasoline will shift to the right.
c. the demand curve for automobiles will shift to the right.
d. the quantity demanded for automobiles will also rise.

18. If there is a surplus in the market for gasoline, then which of the following statements is most likely to be true?
a. Gasoline prices will fall.
b. The demand curve for automobiles will shift to the left.
c. The demand curve for gasoline will shift to the left.
d. Gasoline prices will rise.

19. If the market for bicycles is not in equilibrium, then which of the following statements is definitely true?
a. The price of bicycles will fall.
b. The price of bicycles will rise.
c. The price of bicycles will change, but not enough information is given to determine the direction of the change.
d. NONE of the above.

20. Suppose that the market for luxury automobiles is currently in equilibrium. What effect would a sharp drop in consumers' income have in this market?
a. Both the equilibrium price and the equilibrium quantity will fall.
b. The equilibrium price will fall, but the equilibrium quantity will rise.
c. The equilibrium price will rise, but the equilibrium quantity will fall.
d. Both the equilibrium price and the equilibrium quantity will rise.

21. Suppose the monthly demand for a can of 3 tennis balls at a nearby tennis club can be expressed as Q = 150-30P. What is the price elasticity of demand at a price (P) of $3 per can?
-1.5
-0.6
-600
-30

22. If the cross-price elasticity between home personal computers and video game units for TV is positive, one can conclude that
these products are substitutes for one another.
these products complement one another.
these products are over-priced.
consumers are irrational.

23. The demand for gasoline is more price elastic in the long run than in the short run because in the long run,
a. consumers have greater ability to change the car they drive than they do in the short run.
b. consumers have less ability to change the car they drive than they do than in the short run.
c. consumers have a greater desire to drive big cars than they do in the short run.
d. consumers have an ability to change their driving habits but they do not in the short run.

24. Two demand curves have been drawn to represent the demand for coffee. The two curves intersect at the current market price. One curve is steeper than the other curve. It is most likely that
a. the steeper curve represents the long-run demand for coffee while the flatter curve represents the short-run demand for coffee.
b. the steeper curve represents the short-run demand for coffee while the flatter curve represents the long-run demand for coffee.
c. the steeper curve is more price elastic than the flatter curve at the current market price.
d. the steeper curve is positively sloped.

25. If government regulators set a price ceiling on a good, the size of the shortage that results will be greatest under which of the following settings?
a. Demand and supply are both very inelastic.
b. Demand and supply are both very elastic.
c. Demand is very elastic, but supply is very inelastic.
d. Demand is very inelastic, but supply is very elastic.

26. Suppose that the demand for lawn fertilizer can be expressed as QD = 5000-120P and that the supply of lawn fertilizer can be expressed as QS = 1000 + 80P where Q is measured in tons per year and P is measured in dollars per ton. What is the effect of a government-imposed price ceiling of $10 per ton of fertilizer?
a. A surplus of 2,000 tons.
b. A shortage of 1,200 tons.
c. A surplus of 1,200 tons.
d. A shortage of 2,000 tons.

27. Suppose that the demand for lawn fertilizer can be expressed as: QD = 5000-120P and that the supply of lawn fertilizer can be expressed as: QS = 1000 + 80P where Q is measured in thousands of tons per year and P is measured in dollars per thousand tons. If demand increases 10%, by how much will price change?
Price increases 10%.
Price increases by $7.50.
Price increases by $1.23.
Price will not increase.

28. A rightward shift of the demand curve for computer programmers will result in a
a. shift in the supply curve for programmers and an increase in the price of computer programs.
b. movement along the supply curve for computer programs.
c. movement along the supply curve for computer programmers and a shift in the supply curve for computer programs.
d. movement along the supply curve for programmers and a decrease in the price of computer programs.

29. The indifference curves for two goods are negatively sloped because of the principle that
a. more is preferred to less.
b. indifference curves cannot intersect.
c. preferences are transitive.
d. marginal utility of a good diminishes as more of that good is consumed.

30. Indifference curves cannot intersect because of the assumption that
a. indifference curves are negatively sloped.
b. preferences are complete.
c. preferences are transitive.
d. marginal utility of a good diminishes as more of that good is consumed.

31. John derives utility from the consumption of food and clothing. His utility function can be represented as U =F*C. If John currently consumes 10 units of food and 8 units of clothing, how many units of food would John be willing to give up to get one more unit of clothing?
a. 0.8
b. 1.25
c. 80
d. None

32. If Leon's marginal rate of substitution of chicken for steak is 2, then we know that
a. he is willing to give up 2 units of chicken to get the next unit of steak.
b. he is willing to give up 2 units of steak to get the next unit of chicken.
c. his indifference curves for chicken and steak are convex.
d. he prefers to eat 2 units of steak with every unit of chicken he eats.

33. When Sally had only one gallon of water in the cupboard, she said she was willing to give up a week's worth of television to get another gallon. Now that she has ten gallons of water in the cupboard, she refuses to part with anything when offered another gallon of water. Sally's behavior demonstrates
a. irrationality.
b. diminishing marginal rate of substitution.
c. intersecting indifference curves.
d. that drinking water and watching television are, for some reason, perfect substitutes for her.

34. The vertical intercept of the budget line represents
a. the consumer's nominal income.
b. the consumer's real income in terms of the good measured on the horizontal axis.
c. the consumer's real income in terms of the good measured on the vertical axis.
d. the most money the consumer can spend on the good measured on the vertical axis.

35. Suppose that the quantity of pretzels consumed is measured on the vertical axis and the quantity of soda consumed is measured on the horizontal axis. If the budget line becomes flatter while the vertical intercept is unchanged, then which of the following may have occurred?
a. The price of soda decreased while other things remained constant.
b. Income and the price of soda increased while other things remained constant.
c. The price of pretzels increased while other things remained constant.
d. The price of soda increased, but income increased by a greater percentage while other things remain unchanged.

36. If a consumer's budget line for food (F) and clothing (C) can be written as F = 500-4C, then we know that
a. the consumer's nominal income is 500.
b. clothing costs 4 times as much as food.
c. food costs 4 times as much as clothing.
d. the consumer's nominal income is 2000.

37. If all prices and income increase by 5%, then what will happen to the budget line?
a. The budget line shifts inward by 5%.
b. The budget line shifts outward by 5%.
c. The budget line becomes steeper by 5%.
d. Nothing.

38. By selecting the combination of goods for which MRS = PX/PY , the consumer is saying
a. "I will spend the same amount of money on all goods."
b. "I get the same marginal utility from my last unit of X as I do from my last unit of Y."
c. "I get the same marginal utility from my last dollar spent on X as I do from my last dollar spent on Y."
d. None of the above.

39. Mary and Sue each consume apples and chocolate. They each pay the same price for each of the two goods, and both women claim to be in equilibrium. It must be true that
a. Mary and Sue have the same utility functions.
b. Mary and Sue have the same income.
c. Mary and Sue have the same marginal rate of substitution of apples for chocolate.
d. All of the above.

40. Rocky thinks that a sip of Coke and a sip of Pepsi are perfect substitutes. If Coke sells for $4 per case and Pepsi sells for $2 per case, then
a. Rocky will buy twice as much Pepsi as Coke.
b. Rocky will spend twice as much on Coke as he does on Pepsi.
c. Rocky will buy equal amounts of Coke and Pepsi.
d. Rocky will not buy any Coke.

41. Stefan has $50 to allocate between plays and movies. Plays cost $10 each and movies cost $4 each. Stefan maximizes his utility by buying tickets to 10 movies and 1 play. For his birthday, Stefan receives tickets to 2 plays. Which of the following statements is false?
a. Stefan is definitely now on a higher indifference curve than he was before.
b. Stefan is definitely now on a higher indifference curve than he would be if he had just received the $20 cash.
c. Stefan could not be made worse off if he had received $20 cash instead of the two books.
d. Stefan does not view a play as a perfect substitute for a movie.

42. If Liz's marginal rate of substitution of apples for chocolate is 3, while the price of chocolate is $6 per unit and the price of apples is $1 per unit, then
a. Liz will consider herself to be in equilibrium.
b. Liz will reduce her apple consumption and buy more chocolate.
c. Liz will reduce her chocolate consumption and buy more apples.
d. change her behavior, but information is needed to determine how.

43. Herbert's utility function for food (F) and clothing (C) can be written as U = F*C. If the price of food is $4 per unit and the price of clothing is $2 per unit, how will Herbert allocate his $40 budget?
a. 10 units of clothing and 5 units of food
b. 20 units of clothing and 10 units of food.
c. 5 units of clothing and 10 units of food.
d. 20 units of clothing and 0 units of food.

44. Suppose that the quantity of food is measured on the horizontal axis and the quantity of clothing is measured on the vertical axis. If the price consumption path for food is vertical then
a. the demand for food is unit elastic.
b. the demand for clothing is perfectly inelastic.
c. the demand for food is perfectly inelastic.
d. food is a Giffen good.

45. Suppose that the quantity of food is measured on the horizontal axis and the quantity of clothing is measured on the vertical axis. As income rises, the consumption of food also rises. Therefore, it must be true that
a. food is a normal good.
b. the consumption of clothing also rises.
c. food is a Giffen good.
d. the income effect will partially offset the substitution effect.

46. Suppose that the quantity of food is measured on the horizontal axis and the quantity of clothing is measured on the vertical axis. When the price of food changes, the substitution effect can be found by comparing the equilibrium quantities of food purchased
a. on the old budget line and on the new budget line.
b. on the new budget line and a line parallel to the old budget line tangent to the new indifference curve.
c. on the old budget line and a line parallel to the old budget line tangent to the new indifference curve.
d. on the old budget line and a line parallel to the new budget line tangent to the old indifference curve.

47. Suppose that the quantity of food is measured on the horizontal axis and the quantity of clothing is measured on the vertical axis. When the price of food changes, the income effect can found by comparing the equilibrium quantities of food purchased
a. on the old budget line and on the new budget line.
b. on the new budget line and a line parallel to the old budget line tangent to the new indifference curve.
c. on the old budget line and a line parallel to the old budget line tangent to the new indifference curve.
d. on the new budget line and a line parallel to the new budget line tangent to the old indifference curve.

48. When the price of food increases, Jimmy spends more on food than he did before. It must be true that Jimmy's demand for food
a. violates the law of demand.
b. is relatively elastic.
c. is relatively inelastic.
d. is unit elastic.

49. The price of grapes is different each week at the supermarket. Yet, Marge spends exactly $10 on grapes each week. It must be true that Marge's demand for grapes
a. violates the law of demand.
b. is perfectly elastic.
c. is perfectly inelastic.
d. is unit elastic.

50. The market demand for photo film in a given town is Q = 500-10P where Q is measured as rolls of film consumed per week and P is measured as $/roll. If the price of film is $5 per roll, how much is the consumer surplus in the market for film?
$2,250
$10,125
$11,250
$20,250

51. A legal maximum price at which a good can be sold is a price
a. floor.
b. stabilization.
c. support.
d. ceiling.

52. Which of the following would be categorized as an implicit cost?
(i) forgone investment opportunities
(ii) wages of workers
(iii)raw materials costs
a. (i)
b. (ii)
c. (ii) and (iii)
d. (i) and (iii).

Figure 1

53. Refer to Figure 1. When the price is P₁, consumer surplus is
a. A.
b. A + B.
c. A + B + C.
d. A + B + D.

54. Refer to Figure 1. When the price is P₂, consumer surplus is
a. A.
b. B.
c. A + B.
d. A + B + C.

55. Refer to Figure 1. When the price rises from P₁ to P₂, consumer surplus
a. increases by an amount equal to A.
b. decreases by an amount equal to B + C.
c. increases by an amount equal to B + C.
d. decreases by an amount equal to C.

56. Refer to Figure 1. Area C represents
a. the decrease in consumer surplus that results from a downward-sloping demand curve.
b. consumer surplus to new consumers who enter the market when the price falls from P₂ to P₁.
c. the increase in producer surplus when quantity sold increases from Q₂ to Q₁.
d. the decrease in consumer surplus to each consumer in the market when the price increases from P₁ to P₂.

57. Refer to Figure 1. When the price rises from P₁ to P₂, which of the following statements is not true?
a. The buyers who still buy the good are worse off because they now pay more.
b. Some buyers leave the market because they are not willing to buy the good at the higher price.
c. Buyers place a higher value on the good after the price increase.
d. Consumer surplus in the market falls.

58. Economists consider normative statements to be
a. descriptive, making a claim about how the world is.
b. statements about the normal condition of the world.
c. prescriptive, making a claim about how the world ought to be.
d. statements which establish production goals for the economy.

59. Patent and copyright laws are major sources of
a. natural monopolies.
b. government-created monopolies.
c. resource monopolies.
d. antitrust regulation.

60. Economists normally assume that the goal of a firm is to
(i) make profit as large as possible even if it means reducing output.
(ii) make profit as large as possible even if it means incurring a higher total cost.
(iii) make revenue as large as possible.
a. (i) and (ii) are true.
b. (i) and (iii) are true.
c. (ii) and (iii) are true.
d. (i), (ii), and (iii) are true.

61. John owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?
a. wages John could earn washing windows
b. dividends John's money was earning in the stock market before John sold his stock and bought a shoe-shine booth
c. the cost of shoe polish
d. Both b and c are correct.

62. Brenda likes to have muffins and tea for breakfast. The following table shows Brenda's total utility from various consumption bundles of muffins and tea.

Quantity of muffins	Quantity of tea (cups)	Total utility (utils)
0	0	0
0	1	14
0	2	16
1	1	18
1	2	24
2	0	16
2	1	24
3	0	20
3	1	32
4	0	22
4	1	42

Suppose Brenda knows she will consume 1 cup of tea for sure. However, she can choose to consume different quantities of muffins: she can choose either 0, 1, 2, 3, or 4 muffins.

a. Calculate Brenda's marginal utility from muffins as she goes from consuming 0 muffin to 1 muffin, from 1 muffin to 2 muffins, from 2 muffins to 3 muffins, and from 3 muffins to 4 muffins.

b. Draw Brenda's marginal utility curve of muffins. Does Brenda have increasing, diminishing, or constant marginal utility of muffins?

Assume that fertilizer costs $100 per tonne, and that land rent per hectare is $3,000 per season.

63. Fill in the blanks in the inputs and outputs. How would you relate your observation to the firm's returns to scale?

	Fertilizer (tonnes)	Land (ha)	Total product (tonnes)	% increase in inputs	% increase in output	Average costs
1	6.00	20.00	200	---	---
2	7.20	24.50	260
3	7.92	26.95	299