Econ 110 Dr. Anwar Al-Shriaan Review for the Final Exam

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Econ 110 Dr. Anwar Al-Shriaan Review for the Final exam

1.  Other things being equal, demand is MORE elastic when

a)  the good is a luxury and not a necessity.

b)  the good is broadly defined (a hamburger rather than a Big Mac).

c)  the item is NOT a large part of your budget.

d)  all of the above.

Answer A

2.  Suppose parking fees Kuwait airport increase. If demand is relatively elastic then

a)  total revenue from parking fees will fall.

b)  total revenue from parking fees will rise.

c)  total revenue from parking fees is constant.

d)  the direction of change in total revenue from parking fees cannot be determined.

Answer A

4. The price of a resource with a perfectly inelastic supply, A

a. is pure economic rent.

b. consists of only opportunity cost and has no economic rent.

c. cannot change.

d. is determined by the supply.

5. What does monopolistic competition have in common with perfect competition? A

a. a large number of firms and freedom of entry and exit

b. a standardized product

c. product differentiation

d. the ability to earn an economic profit in the long run

6. In the long run, existing firms exit a perfectly competitive market when D

a. economic profits are zero.

b. economic profits are greater than zero.

c. normal profits are greater than zero.

d. they incur an economic loss.

7. If the price elasticity of supply for a good is 0.5, then C

a. an increase in the price increase the quantity supplied by a larger percentage.

b. the supply is elastic.

c. the percentage change in the quantity supplied is less than the percentage change in price.

d. None of the above answers are correct.

8. If a firm does not produce any output, its C

a. total fixed cost must be zero.

b. economic profit must be positive.

c. total variable cost must be zero.

d. total costs must be zero.

9. Economies of scale occurs when the average total cost of production ____ as output ____. C

a. increases, increases

b. decreases, decreases

c. decreases, increases

d. remains constant, increases

11. Other things remaining the same, the C

a. higher the interest rate, the greater the quantity of capital demanded.

b. lower the interest rate, the smaller the quantity of capital demanded.

c. higher the interest rate, the smaller the quantity of capital demanded.

d. interest rate and the quantity of capital demanded are not related.

Consider the graphs below to answer the following two questions.

1.  h graph(s) below show a relationship with a negative slope?

a.  A and D.

b.  C and D.

c.  A and B.

d.  B and C.

B

2.  The production possibility curve (or frontier) is concave due to

a.  its negative slope.

b.  its shifting out over time.

c.  increasing opportunity costs.

d.  all of the above.

C

3.  Suppose the elasticity of demand for an iPod is – 3.5. This means that

a.  the demand for iPods is inelastic.

b.  the demand curve for iPods is very steep.

c.  a 10 percent increase in the price of iPods will cause the quantity demanded to RISE by 35%.

d.  a 10 percent increase in the price of iPods will cause the quantity demanded to FALL by 35%.

D

4.  Consider the market for SUVs (like jeep) . If the price of gasoline increases by 150% we would expect the equilibrium price of SUVs to _____ and the equilibrium quantity to _____.

a.  increase; increase

b.  increase; decrease

c.  decrease; increase

d.  decrease; decrease

D

5.  Which of the following events would cause the supply of gum to FALL?

a.  A discovery that chewing gum reduces tooth decay.

b.  An increase in the price of cinnamon.

c.  A rise in income (assuming gum is a normal good).

d.  A rising population.

B

6.  A time-series graph of mortgage rates would show

a.  the mortgage rates in different cities.

b.  the relationship between mortgage rates and housing sales.

c.  the behavior of mortgage rates over time.

d.  that mortgage rates are positively related to ice cream sales.

C

7.  Any point outside the PPF (or PPC),

a.  is not possible given current resources and technology.

b.  represents efficient use of the economy’s resources.

c.  represents the inefficient use of the economy’s resources.

d.  none of the above.

A

8.  An increase in the price of Snapple drinks

a.  causes the supply of bottled water to shift right.

b.  causes the demand for Snapple drinks to shift left.

c.  causes the demand for bottled water to shift right.

d.  causes none of the above.

C

9.  If flour is an inferior good, then

a.  an increase in income will decrease the demand for flour.

b.  the demand for flour is negatively related to income.

c.  the income elasticity of flour is negative.

d.  all of the above.

D

10.  Which of the following is a positive statement?

a.  Taxes in New York are too high.

b.  New York State income taxes are the highest in the nation.

c.  New York State income taxes are unfair.

d.  New York State should replace its income tax with a higher sales tax.

B

11.  In terms of the factors of production, the computer on my desk in CBA is an example of

a.  land.

b.  labor.

c.  capital.

d.  entrepreneurship.

C

12.  When both demand and supply increase (hint: think about each separately, then put them together)

a.  the equilibrium price definitely falls.

b.  the equilibrium price definitely rises.

c.  the equilibrium quantity definitely falls.

d.  the equilibrium quantity definitely rises.

D

13.  The opportunity cost of attending college includes

a.  the cost of food.

b.  the higher expected future income from a college degree.

c.  the wages forgone from studying and attending class instead of working.

d.  all of the above.

C

14.  Consider the following statement: “As more women have entered the labor force, the incidence of skin cancer has increased. Therefore women working causes skin cancer.” This statement is an example of

a.  the pitfall of assuming that correlation implies causation.

b.  the fallacy of composition.

c.  the failure to consider secondary effects.

A

15.  Suppose we observe that the price of laser printers has fallen. This could only be due to

(Hint: DRAW THE GRAPH!)

a.  an increase in demand and/or a decrease in supply.

b.  a decrease in demand and/or an increase in supply.

c.  a decrease in demand and/or a decrease in supply

d.  an increase in demand and/or an increase in supply.

B

16.  Consider bagels and cream cheese. These two goods have a cross elasticity of -5. This means that

a.  Bagels and cream cheese are strong complements.

b.  Bagels and cream cheese are weak complements.

c.  Bagels and cream cheese are strong substitutes.

d.  Bagels and crease cheese are weak substitutes.

A

17.  Other things being equal, supply is LESS elastic when

a.  producers have a longer time to adjust production. (a year vs. a day)

b.  an item is easily stored.

c.  a good is in fixed supply (such as paintings by Rembrandt or Monet).

d.  all of the above.

C

18.  Which of the following will DECREASE the demand for cereal?

a.  an increase in the price of pop tarts.

b.  an increase in the price of milk.

c.  an increase in the price of cereal.

d.  all of the above.

B

19.  Which of the following is an explicit cost?

1. The wages a firm pays to its workers.
2. The opportunity cost of an owner/entrepreneur's time invested in the firm.
3. The opportunity cost of the money the business owner/entrepreneur has invested in the firm.
4. None of the above.

Answer A

20.  I pay only $5 for a large cheese pizza at Little Caesar’s even though I am willing to pay $10. My consumer surplus is

1. $50
2. $15
3. $7.50
4. $5

Answer D

21.  For a perfectly competitive firm, marginal revenue (MR)

1. is constant, given that the firm is a price taker.
2. is less than price, given that selling additional units pulls down the price of all units.
3. is greater than price since the firms demand is perfectly elastic.
4. is u-shaped due to the law of diminishing marginal returns.

Answer A

Use the table below to answer the following TWO questions.

Units of labor / Total product
1 / 10
2 / 20
3 / 27
4 / 25

22.  According to the table above, the average product (AP) of 3 units of labor is

1. 7
2. 9
3. 10
4. 27

Answer B

23.  According to the table above, the marginal product (MP) of 3rd unit of labor is

1. 7
2. 9
3. 10
4. 27

Answer A

24.  Assume that the total utilities for the 7th and 8th units of a good consumed are 55 and 67, respectively. The marginal utility (MU) for the 8th unit is

1. 122
2. 67
3. 61
4. 12

Answer D

25.  Suppose the first four units of an output produced have total costs of 50, 150, 300, 500, respectively. The marginal cost (MC) of the SECOND unit of output is

1. 200.
2. 150.
3. 100.
4. 75

Answer C

26.  In the short run, a perfectly competitive firm will produce even with an economic loss, as long as

1. marginal revenue equals marginal cost. (MR=MC)
2. price is less than average total cost. (P < ATC)
3. price is greater than average variable cost. (P > AVC)
4. price is greater than marginal revenue. (P > MR)

Answer C

27.  With diminishing marginal utility,

1. as more and more units of a good or service are consumed, total utility becomes smaller and smaller.
2. as more and more units of a good or service are consumed, marginal utility becomes smaller and smaller.
3. the marginal utility curve is always upward sloping.
4. marginal utility is constant.

Answer B

28.  Which of the following correctly explains why sellers in a perfectly competitive market are price-takers?

1. There are few sellers, and so they have the power to take whatever price they want.
2. Sellers in a competitive market have the power to influence price by colluding with one another and using quotas to limit overall market output and thus raise price.
3. Individual buyers in a competitive market have the power to influence price, and thus can impose prices and other conditions on powerless sellers.
4. There are many small sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller. Thus they have no choice but to take the price generated by the market process.

Answer D

29.  Total utility rises

1. when marginal utility is negative.
2. as indifference curves move up and to the right.
3. along the same indifference curve, moving from left to right.
4. all of the above.

Answer B

30.  In an economic theory, the production possibilities curve (PPC) and the budget line are examples of

1. the outcome or choice resulting from objectives and constraints.
2. firm and consumer objectives.
3. physical and financial constraints.
4. none of the above.

Answer C

31.  Which of the following represents the key difference between the short run and the long run?

1. In the short run at least one of a firm's resources is fixed, while in the long run all resources under the firm's control are variable.
2. The short run corresponds to the anticipated remaining life span of the owner/entrepreneur.
3. In the long run at least one of a firm's resources is fixed, while in the short run all resources under the firm's control are variable.
4. None of the above.

Answer A

32.  When a firm is experiencing economies of scale

1. the long-run average cost curve is declining.
2. the long-run average cost curve is constant.
3. the long-run average cost curve is rising.

Answer A

33.  The profit-maximizing rate of output for a firm in a perfectly competitive market is found when which of the following occurs?

1. Total revenue equals total cost. (TR =TC)
2. Price equals average total cost. (P=TC)
3. Marginal revenue equals marginal cost. (MR=MC)
4. Price equals average variable cost. (P=AVC)

Answer C

34.  The firm’s demand curve for a product sold in a perfectly competitive market is

1. inelastic, but not perfectly inelastic.
2. perfectly inelastic.
3. elastic, but not perfectly elastic.
4. perfectly elastic.

Answer D

35.  Monopolistic competition differs from perfect competition in that

1. monopolistic competition has barriers to entry.

b.  monopolistic competition allows for economic profits in the long run.

c.  monopolistic competitive firms sell a product differentiated through marketing and advertising.

d.  all of the above.

Answer C

36.  A firm will hire a resource

a.  until the extra revenue from employing that resource is equal to the extra cost of hiring that resource.

b.  as long as the resource brings in a positive amount of revenue.

c.  as long as its marginal product is positive.

d.  both b and c.

Answer A

37.  The demand for automobile workers will rise if

1. the wage of automobile workers rises.
2. the wage of automobile workers falls.
3. the demand for automobiles rises.
4. both b and c.

Answer C

38.  Oligopoly is a market structure characterized by

1. a horizontal demand curve.
2. a large number of small firms.
3. one single firm and many buyers
4. interdependence among firms in decision makin

Answer D

39.  If UPS hires another worker, UPS will be able to deliver an additional 20 packages an hour. The price of each package is $5. The marginal revenue product (MRP) of this additional worker is equal to

a.  $5.

b.  $100.

c.  $4.

d.  20 packages.

B

40.  Consider the graph above. The profit-maximizing price and output for a firm under monopolistic competition is

1. a price of $2 and a quantity of 30.
2. a price of $1 and a quantity of 20.
3. a price of $3 and a quantity of 30.
4. a price of $3 and a quantity of 20.

Answer D

41.  When the wage increases, a consumer will work more because the opportunity cost of leisure and nonmarket work have risen. This is known as the