Principles of Microeconomics Exam Preparation Guide - 4504 Verified Questions
Chapter 1: A Brief Economic History of the United States
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Q1) Henry Ford
A)was the second automobile manufacturer to use a moving assembly line.
B)was the first automobile manufacturer to manufacture a standardized engine with interchangeable parts.
C)sold millions of cars at a small unit of profit that allowed his company to keep auto prices low and wages high.
D)all of the statements are true.
Answer: C
Q2) The last year (s) of very high inflation was (were) ___________.
Answer: 1981 and 1982
Q3) About how many Americans still live on farms today?
A)4.5 million
B)14.5 million
C)24.5 million
D)34.5 million
E)45.5 million
Answer: A
Q4) What two main things did returning veterans want to buy after World War II?
Answer: Cars and houses
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Chapter 2: Resource Utilization
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Q1) If the economy were producing at point E and moved to point D,
A)the unemployment rate would increase.
B)the unemployment rate would decrease.
C)the production possibilities would shift outward.
D)the economy would shift resources from producing butter to producing guns.
E)the economy would shift resources from producing guns to producing butter.
Answer: D
Q2) Which of the following would NOT be an opportunity cost of fighting the war in Iraq?
A)The $5 billion per month spent on research to cure breast cancer.
B)A $5 billion per month cut in income taxes.
C)A $5 billion per month investment in high speed rail systems between 12 major cities in the country.
D)The $5 billion per month cost of fighting the war.
E)A $5 billion per month program that invested in low-income housing across the country.
Answer: D
Q3) During World War II, a nation's opportunity cost of devoting resources to the war effort was _____________.
Answer: producing fewer civilian goods
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Chapter 3: The Mixed Economy
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Q1) Of the 39 million Americans living in poverty, _______________ are children.
A)one-quarter
B)10 percent
C)less than half
D)more than half
Answer: D
Q2) Which statement is true?
A)Externalities and public goods are basic classes of market failure.
B)Externalities, but not public goods, is a basic class of market failure.
C)Public goods, but not externalities, is a basic class of market failure.
D)Neither public goods nor externalities are basic classes of market failure.
Answer: A
Q3) The U.S. has a mixed economy because
A)the government helps in answering the three basic questions of economics: what, how and for whom.
B)the laissez faire market system lacks government intervention.
C)all goods and services are provided privately.
D)the central planning body makes all market decisions.
Answer: A
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Chapter 4: Supply and Demand
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Q1) Equilibrium price is
A)$5
B)$4
C)$3
D)$2
E)$1
Q2) Which statement is false?
A)A demand curve slopes downward to the right.
B)Moving down along a demand curve, price falls and quantity rises.
C)Moving up a demand curve, price rises and quantity rises.
D)A demand curve shows an inverse relationship between price and quantity.
Q3) In the graph shown above, if the government set a price ceiling of $45
A)there would be a surplus.
B)there would be a shortage.
C)there would be no effect as buyers and sellers already agree on equilibrium price and quantity.
D)there would be a temporary surplus, then price would fall to equilibrium price.
Q4) Equilibrium quantity is _____.
Q5) Price always tends toward its ______________ level.
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Chapter 5: Demand, Supply, and Equilibrium
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Q1) A move from G to H represents A)an increase in quantity demanded.
B)a decrease in quantity demanded.
C)an increase in demand.
D)a decrease in demand.
Q2) At equilibrium, price ________ is equal to ________.
Q3) A decrease in supply is a decrease in the quantity that sellers are willing and able to sell at ______.
Q4) A shift in the demand for gasoline in the United States would result if A)significantly more people decided to use mass transit than travel by automobile. B)the price of gasoline decreased.
C)Congress and the President allowed oil to be drilled in previously restricted areas. D)new methods were discovered for recovering oil from wells previously considered dried up.
Q5) When the demand for CDs rises, buyers will purchase more CDs at A)all prices.
B)some prices.
C)no prices.
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Chapter 6: The Price Elasticities of Demand and Supply
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Q1) When elasticity is 0.1, demand is A)elastic.
B)inelastic.
C)unit elastic.
D)undefined.
Q2) If elasticity of demand is 5 and price is raised from $10 to $11, by what percentage will quantity demanded fall?
Q3) When two goods are complementary goods, as the price of one of the goods goes _____, the quantity demanded of the other goes _____. A)down; down B)up; up C)up; down D)down; neither up nor down
Q4) How much is the tax?
A)$6.00
B)$4.50
C)$3.00
D)$1.50
E)$0
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Chapter 7: Theory of Consumer Behavior
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Q1) If the price were $6 each, her consumer surplus would be
A)$26.
B)$18.
C)$13.
D)$3.
E)None of the choices are correct.
Q2) When marginal utility is zero, total utility
A)is zero.
B)is maximized.
C)is falling.
D)is negative.
Q3) When you are maximizing your utility for product A,
A)marginal utility of A = 0.
B)marginal utility of A = 1.
C)marginal utility of A = price of A
D)None of these are true.
Q4) A person will be maximizing their utility when
A)the marginal utility of product A is greater than the price of product A.
B)the price of product A is greater than the marginal utility of product A.
C)the price of product A = the marginal utility of product A.
9
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Chapter 8: Cost
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Q1) At small levels of output the gap between the ATC and the AVC curves is ______, and at larger levels of output the gap between the ATC and the AVC curves is ______.
Q2) State the minimum points (in dollars and cents) of (a) the AVC and (b) the ATC.
Q3) The MC curve intersects the AVC and ATC curves at their minimum points
A)none of the time.
B)some of the time.
C)most of the time.
D)all of the time.
Q4) If a firm that is losing money and that has variable costs of $2,000,000 continues to operate, we may conclude that its total revenue is _________.
Q5) When MC is falling, ATC and AVC
A)must be rising.
B)must be falling.
C)may be falling or rising.
D)will remain constant.
Q6) Draw a graph of AVC, ATC, and MC.
Q7) In 1776 in the Wealth of Nations, Adam Smith noted three advantages of economies of scale: ___________________; _________________________; and ______________________.
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Chapter 9: Profit, Loss, and Perfect Competition
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Q1) A perfectly competitive firm maximizes profits by producing at the point where
A)the distance between price and average total cost is the greatest.
B)the distance between price and marginal cost is the greatest.
C)price equals marginal cost.
D)price equals average total cost.
Q2) Total profit
A)is the rectangle bounded by EFIJ.
B)is the rectangle bounded by FGHI.
C)is the rectangle bounded by GHMO.
D)cannot be found on this graph.
Q3) A profit-maximizing firm will always operate at that output at which _______ is equal to _______.
Q4) If you had economic profits of $50,000, implicit costs of $100,000, and sales of $500,000 how much were your accounting profits?
Q5) When a firm is operating at peak efficiency it is at the A)shutdown point.
B)break-even point.
C)between the shutdown and break-even points.
Q6) A firm that accepts the price as determined by industry supply and demand is called a ______.
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Chapter 10: Monopoly
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Q1) The marginal revenue that would be derived from producing a fifth unit of output is
A)$9.
B)$11.
C)$13.
D)$15.
E)$17.
Q2) Rutgers University granted Coca-Cola a ___________ to sell its beverages on campus.
Q3) There are only two justifications for monopoly: ______________ and _____________.
A)economies of scale; natural monopolies
B)economies of scale; patents
C)natural monopolies; patents
D)imperfect competition; being established
Q4) The profit-maximizing firm will operate at an output of _____.
A)OI
B)OJ
C)OK
D)OL
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Chapter 11: Monopolistic Competition
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Q1) The monopolistic competitor's demand curve is more _______ (elastic / inelastic) than a monopolist's demand curve.
Q2) In the long run the monopolistic competitor _______ an economic profit and the perfect competitor ________ an economic profit.
A)makes; makes B)makes; does not make C)does not make; does not make D)does not make; makes
Q3) Given the information in the graph above, how much profit does this monopolistic competitor make?
Q4) ______% of all American business firms are monopolistic competitors.
Q5) An industry that has many firms producing a differentiated product would be classified as
A)perfectly competitive
B)a monopoly
C)monopolistically competitive
D)None of these choices are correct.
Q6) The definition of monopolistic competition differs from that of perfect competition with respect to ______________.
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Chapter 12: Oligopoly
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Q1) An example of an oligopoly market would be one in which ___ firm(s) sell(s) ____% of the output.
A)1; 95
B)3; 10
C)4; 80
D)250; 35
E)1,000; 99
Q2) The largest firm in Industry Q has a 50% market share and the next five firms each has a market share of 10%. The largest firm in Industry R has a 40% market share and the next three firms each has a market share of 20%. Which statement is true?
A)Industry Q has a higher Herfindahl-Hirschman Index than Industry R.
B)Industry R has a higher Herfindahl-Hirschman Index than Industry Q.
C)The HHIs of these industries are equal.
D)None of these statements are true.
Q3) Two shortcomings of using concentration ratios are: (1) ____________; and (2)
Q4) Calculate the firm's total profit.
Q5) If the firm were a perfect competitor in the long run, what price would it charge?
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Chapter 13: Corporate Mergers and Antitrust
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Q1) Which of the following is false?
A)In general, the deregulation of the airlines and interstate trucking industries led to higher costs and higher prices.
B)Since the early 1980s the size of companies acquired in mergers has been getting larger.
C)The rule of reason is partially in force today as firms are subject to prosecution if they control 60% of the relevant market and have behaved badly toward their competitors.
D)When two firms in the same industry form one larger company it is called a horizontal merger.
Q2) Alcoa, which produced about ______% of the country's aluminum, maintained in its 1945 case that while it was big, it was not ___________. The Supreme Court found that ________.
Q3) The two federal agencies responsible for bringing suit against anticompetitive mergers are the ___________ and the __________.
Q4) ____________ has settled four different allegations for illegal pharmaceutical marketing activities since 2002.
Q5) The 60 percent rule states that _________________________.
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Chapter 14: Demand in the Factor Market
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Q1) You should
A)increase the number of repair people working for you.
B)decrease the number of repair people working for you.
C)make no change in the number of people you use.
D)lay off all your employees and do all the work yourself.
Q2) Derived demand is a demand for
A)final goods and services.
B)products.
C)resources.
D)goods produced by perfect competitors.
E)goods produced by imperfect competitors.
Q3) If this firm were a perfect competitor selling its entire output at a price of $1, the marginal revenue product of the third unit of input would be
A)$0.
B)$1.
C)$2.
D)$3.
E)$10.
Q4) Productivity is output per unit of __________.
Q5) If the wage rate were $335, how many workers would be hired?
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Chapter 15: Labor Unions
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Q1) How many U.S. labor unions have at least 1.3 million members?
A)0
B)2
C)6
D)9
Q2) Which is the most accurate statement?
A)Most strikes cause no economic disruption.
B)The job of a mediator is to impose a settlement.
C)Collective bargaining negotiations occasionally end with a strike.
D)The firm with the least ability to withstand a strike would be a manufacturing firm.
Q3) If all professional baseball teams collude to reduce the wages paid to players, they are acting as
A)a pure monopsony.
B)a pure monopoly.
C)a labor union.
D)a pure oligopoly.
Q4) In a labor market, the monopsonist faces the entire ___________.
Q5) The buyer of a single product for which there are no close substitutes is called a ________.
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Chapter 16: Labor Markets and Wage Rates
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Q1) Statement I: In the U.S., the CEOs of large corporations earn more than 400 times the salary of the average American production worker. Statement II: The U.S. has lower hourly wages in its manufacturing sector than those in Germany, Norway, and Canada.
A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.
Q2) At relatively low wage rates the ____________ outweighs the ____________.
A)income effect; substitution effect
B)substitution effect; income effect
C)marginal revenue product; resource demand
D)None of these choices are correct.
Q3) Barbara Ehrenreich wrote about jobs in the ______ labor market; Beth Schulman wrote about jobs in the ______ labor market.
A)secondary; secondary
B)primary; primary
C)secondary; primary
D)primary; secondary
Q4) In 2007, about 1 out of every ______ workers earned less than $9 an hour.
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Chapter 17: Rent, Interest, and Profit
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Q1) What is the present value of $10,000 8 years from now if the interest rate is 8%?
Q2) ____________ laws set a ceiling on interest rates.
Q3) As the demand for land falls
A)rents rise and more marginal land comes into use.
B)rents fall and less marginal land is used.
C)rents rise and less marginal land is used.
D)rents fall and more marginal land comes into use.
Q4) What is the present value of $1,000 received 3 years from now if the interest rate is 6%?
Q5) The rent on marginal land is _____________.
Q6) Which statement is false?
A)The most important determinant of the value of an acre of land is its location.
B)The supply of land is virtually fixed.
C)Land is not a resource; only the minerals that are found under it are resources.
D)A firm's demand for land is its marginal revenue product schedule for land.
E)None of the statements is false.
Q7) Without usury laws interest rates would be ____________________.
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Chapter 18: Income Distribution and Poverty
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Q1) Which statement are true?
A)There is no evidence whatsoever to support the contention that women, blacks, Hispanics, and other minorities are victims of employment discrimination.
B)The relatively lower wages earned by women and minorities can be explained entirely by employment discrimination.
C)The poverty of women, blacks, and Hispanics can be explained almost entirely by their low earnings.
D)None of the statements is true.
Q2) Perhaps the biggest problem that is faced by those administering workfare programs is
A)that most of the people on welfare are not highly employable.
B)too much money is allocated for education and training.
C)that welfare recipients have no incentive to work.
D)the states are not required to follow any guidelines in administering the program.
Q3) The percentage of our population below the poverty line is about _______%.
Q4) What is the percentage of income received by the upper quintile on line Y?
Q5) Compared to the poverty rate for non-Hispanic whites, the poverty rate for Hispanics is almost _____.
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Chapter 19: International Trade
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Q1) Frederic Bastiat formulated
A)the theory of absolute advantage.
B)the theory of comparative advantage.
C)the petition of the candlemakers to shut out the sun.
D)the infant industry argument.
Q2) Statement I: One reason why we don't enact high protective tariffs to save American jobs is that most Americans would not tolerate doing without certain foreign goods. Statement II: A high protective tariff would probably raise our standard of living.
A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.
Q3) Which of the following is a similarity between the impact of import quotas and the impact of tariffs?
A)Both increase the prices paid by American buyers.
B)Both increase profitability for the foreign sellers.
C)Both increase the net prices received by foreign sellers.
D)Both increase tax revenues for the U.S.government.
Q4) What is Italy's opportunity cost of producing 5 pairs of shoes?
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Chapter 20: International Finance
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Q1) If the exchange rate changes so that more Swiss francs are required to buy a dollar, then
A)the franc has appreciated in value.
B)Americans will buy more Swiss goods and services.
C)more American goods and services will be demanded by the Swiss.
D)the dollar has depreciated in value.
Q2) If the inflation rate in the U.S. is lower than in other countries, this would be expected to
A)increase U.S.exports.
B)reduce U.S.imports.
C)increase the demand for dollars.
D)All of the choices are true.
Q3) The summary of the flows of goods, services, assets, and currency in and out of a country in a particular year is the _______________________.
Q4) If the dollar was initially valued at 20 rubles and its value rises to 23 rubles, then the value of a ruble (in terms of dollars) has ____________.
Q5) If 1 U.S. dollar exchanges for 46.94 Indian rupees, how much would it cost in rupees to purchase a copy of Time Magazine priced at $2.50?
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