Reference no: EM13184394

1) The Latin phrase ceteris paribus means that when a relationship between two variables is being studied: 1) _______

A) we recognize that some factors are unknown.

B) all other variables are held fixed.

C) both are treated as unpredictable.

D) neither of those two variables is allowed to change.

2) Which of the following is an example of scarcity? 2) _______

A) If you choose to play video games you will not have as much time for exercise.

B) If I decide to buy a new car I may not have enough money to go away on vacation this year.

C) If a city uses an acre of land to build a park there will be less land for houses.

D) All of the above are examples of scarcity.

3) Diminishing returns occurs because: 3) _______

A) not enough people have jobs.

B) consumers do not buy enough of the products produced.

C) one of the inputs to the production process is fixed.

D) people have not satisfied their self-interests.

4) The economic reason why you voluntarily pay tuition to get into the university/college that you are in right now is

because: 4) _______

A) you believe the value of education is lower than the tuition costs.

B) the marginal benefit of education is positive.

C) you believe the value of education is higher than the tuition costs.

D) the marginal benefit of money is zero.

Recall Application 6, "Repaying Student Loans," to answer the following questions:

5) The application shows that high inflation results in fewer years to pay back student loans because: 5) _______

A) when inflation is high, the nominal value of the loan decreases.

B) when inflation is high, the nominal value of the loan increases.

C) when inflation is high, the nominal value of the wages decrease.

D) when inflation is high, the nominal value of wages increases.

6) You rent a copy of a new action/adventure movie. The rental is for seven days and you watch the movie on the firstday. You tell a friend about the film and your friend asks to come over and watch the movie with you before it is due back. What is your opportunity cost of watching the movie a second time? 6) _______

A) Zero, because it won't cost you any money to keep the movie for another day.

B) One half the rental cost, because you have already watched the movie one time.

C) The answer depends on how much you liked the movie in the first place.

D) The answer depends on what else you could do besides watching the movie.

7) Which of the following tend to reduce economic uncertainty? 7) _______

A) health insurance. B) social security.

C) unemployment insurance. D) All of the above are correct.

8) One of the most obvious clues to the relative scarcity of a product in a market economy is: 8) _______

A) its current market price. B) the variations in available sizes.

C) the limited selection of colors. D) none of the above

10) In a market economy, what is the role of the government with regards to public goods? 10) ______

A) The government must hold a referendum before any public good is produced.

B) The government has to facilitate the collective decision making in the production of public goods.

C) The government must force the firms to produce all the public goods.

D) The government must take over the production of all goods in the market, public or private.

12) A change in the quantity demanded of a product cannot be the result of a change in: 12) ______

A) the buyer's preference. B) consumer income.

C) the price of related goods. D) all of the above are correct.

13) When the price of a substitute product decreases, the demand for a substitute product: 13) ______

A) changes to balance the price change. B) decreases.

C) increases. D) none of the above

14) When consumers are willing to buy more than producers are willing to sell: 14) ______

A) there is excess supply of the product in the market.

B) the market is in equilibrium.

C) the demand curve will shift until the quantity supplied equals the quantity demanded.

D) there is excess demand for the product in the market.

15) Suppose that the price of fertilizer, an input in the production of corn, falls. We would predict that the equilibrium

quantity of corn will ________ and the equilibrium price of corn will ________. 15) ______

A) rise; rise B) rise; fall C) fall; rise D) fall; fall

16) If the price of hotdogs are expected to increase in the future, then: 16) ______

A) the current demand for hotdogs will decrease.

B) the current quantity demanded for hotdogs will increase.

C) the current demand for hotdogs will increase.

D) the current quantity demanded for hotdogs will decrease.

17) Assume the price of ice cream cones falls from $1.50 to $1.00 and the quantity supplied decreases from 150 to 125 per

week. Using the initial price method the price elasticity of supply is: 17) ______

A) 2. B) 1.2. C) .50. D) .75.

18) Suppose the price elasticity of supply for rocking chairs is 1.2 and the price increases by 20%. The quantity supplied

will increase by ________ %. 18) ______

A) 20 B) 18 C) 24 D) 12

19) Which of the following is a true statement? 19) ______

A) If demand is elastic and the price increases, the total revenue will increase.

B) If demand is elastic and the price decreases, the quantity demanded will decrease.

C) If demand is inelastic and the price increases, the total revenue will decrease.

D) If demand is inelastic and the price increases, the total revenue will increase.

20) Consumer surplus is equal to: 20) ______

A) the good's price times the quantity purchased.

B) the area under the demand curve.

C) the area under the demand curve above the good's price.

D) the area under the demand curve below the good's price.

21) Taxes may cause deadweight losses because: 21) ______

A) they transfer purchasing power from buyers to the government.

B) they increase consumer surplus at the expense of producer surplus.

C) they lower the surplus in the market.

D) they transfer purchasing power from sellers to the government.

22) Assume that the supply of smartphones remains constant, but the price of smartphones increases. Producer surplus:

22) ______

A) will remain constant.

B) will increase.

C) will decrease.

D) may increase or decrease depending on the amount of the price increase.

Additional Application

Prior to 2001 Canada annually exported billions of board feet of lumber to the USA tariff-free. The two countries had followed an agreement in which there would be no restrictions on the lumber from Canadian companies. In March 2001 the agreement ended and in 2002 the USA imposed tariffs and duties on imported Canadian lumber. What were the effects of these changes and who gained and who lost? The forestry workers of Canada were hurt. About 15,000 workers lost their jobs in British Columbia and many Canadian towns suffered from the loss of income from lumber sales and related industries. Exports to the USA fell from 14.7 billion board feet in 2000 to 20.9 million board feet in 2004. When the lumber prices rose in the USA, the costs of production for home building firms increased.

The USA government has realized $3.5 billion from the tariffs and that is sitting in the Treasury awaiting resolution of legal disputes. Lumber companies in the USA have seen their prices rise with less competition. James Thayer, "Soft Wood, Hard Dispute," The Weekly Standard, November 18, 2005. Online

23) According to this application about the USA imposing tariffs on lumber from Canada, if the cost of production for US

construction companies increased, then their ________ curve should shift ________. 23) ______

A) supply; left B) demand; left C) demand; right D) supply; right

24) With respect to the equimarginal rule, a person will maximize utility when the: 24) ______

A) marginal utility per dollar spent is equalized across products.

B) total utility is equalized across products.

C) total utility per dollar spent is equalized across products.

D) marginal utility is equalized across products.

25) Ted has $600 a week to spend on food and clothing. The price of food is $5 and the price of clothing is $30. Which of

the following pairs of food and clothing are in the Ted's budget set? 25) ______

A) 20 units of clothing and 50 units of food B) 0 unit of clothing and 200 units of food

C) 10 units of clothing and 60 units of food D) 10 units of clothing and 125 units of food

26) Consumers should allocate their scarce income so that: 26) ______

A) the marginal utility for all goods consumed is equal.

B) the marginal utility divided by price is equal for all goods consumed.

C) the marginal utility divided by price is maximized for all goods consumed.

D) the marginal utility for all goods consumed is zero.

27) The period of time when a firm is able to change all of inputs, or factors of production, is called the: 27) ______

A) accounting term. B) short run.

C) economic term. D) long run.

28) The short run can be defined as any period of time: 28) ______

A) less than one year. B) in which all inputs are variable.

C) in which some inputs are fixed. D) in which price is fixed.

29) Every point on the long-run average cost curve represents: 29) ______

A) the minimum point of the associated short-run average cost curve.

B) the minimum cost at which the associated output level can be produced when the scale of plant cannot be changed.

C) the minimum cost at which the associated output level can be produced when the scale of plant can be changed.

D) both A and B

Scenario 9.1: 21st Century Pen Inc. produces 2000 pens per day, and hires 20 workers at a cost of $200 per day per worker. The price of each pen is $5 each. 21st Century Pen Inc. pays a daily rental rate of $60 on its factory and a daily insurance rate of $20. 21st Century Pen Inc. has a ten year lease on the factory and insurance contract for a year, the company has no other expenses.

31) Refer to Scenario 9.1. 21st Century Pen Inc.'s average total cost at an output of 2000 pens per day is approximately:

A) $2 per unit. B) $2 .01 per unit. C) $2 .03 per unit. D) $2 .04 per unit.

32) If a firm in a perfectly competitive market tries to raise its price above the going market price, then: 32) ______

A) it will sell more output.

B) it will sell some output, but not as much as before.

C) it will sell the same amount of output as before.

D) it will not be able to sell any output.

33) If a firm is producing where marginal revenue is greater than marginal cost: 33) ______

A) the revenue gained by producing one more unit of output equals the additional cost incurred by doing so.

B) the firm is already maximizing profits because revenue is being increased by more than costs.

C) the revenue gained by producing one more unit of output exceeds the additional cost incurred by doing so.

D) the revenue gained by producing one more unit of output is less than the additional cost incurred by doing so.

35) Suppose we know that a monopolist is maximizing its profits. Which of the following must be true? The monopolist

has: 35) ______

A) maximized the difference between marginal revenue and marginal cost.

B) equated marginal revenue and marginal cost.

C) set price equal to its average cost.

D) maximized its total revenue.

37) In monopolistic competition, firms can have some market power based on the fact that: 37) ______

A) there are barriers to entry. B) they produce differentiated goods.

C) there is only one firm in the industry. D) they are large in size.

38) Which of the following goods are sold in a monopolistically competitive market? 38) ______

A) cookies B) oil C) corn D) wheat

40) The owner of Instant Printing, a firm that prints business cards, tells you that as a result of an increase in the wage rate of printer operators he has reduced the amount of output he produces and the amount of capital he uses. How would you respond to this? 40) ______

A) This seems logical, because the output effect of an input price increase would cause a firm to demand less of all inputs, not just the input whose price increased.

B) You tell him that the input-substitution effect and the scale effect both suggest that he decrease the amount of capital he uses when his workers' wage rate increases.

C) You should tell him that this doesn't make any economic sense because according to the input-substitution effect he should have substituted toward capital and away from labor.

D) You should tell him that instead of reducing output and the demand for all inputs, he should increase output and the demand for inputs so that he can meet the higher labor costs by generating more revenue.

II. Write the phrase that best completes each statement or answers the question.

41) Explain three ways we can use microeconomics analysis. 41) ____

42) What is an export? 42) ___

43) Is supply more elastic in the short run or the long run? Why? 43) ____

44) Comment on the following statement: "The more inelastic the demand, the greater is the deadweight loss caused by any given tax rate." 44) _____

45) What is the law of diminishing marginal utility?