Econ 302 Practice Exam Final Problems

question

Which of the following will cause the price of beer to rise?

answer

Both A shift to the left in supply

question

If the quantity of good A (Qa) is plotted along the horizontal axis, the quantity of good B (Qb) is plotted along the vertical axis, the price of good A is Pa, the Price of good B is Pb, and the consumers income is I, then the slope of the consumers budget constraint is

answer

-Pa/Pb

question

In the short run, a perfectly competitive profit maximizing firm that has not shut down

answer

is operating on the upward sloping portion of its AVC curve

question

A few sellers may behave as if they operate in a perfectly competitive market if the market demand is

answer

very elastic

question

Which of the following inputs are variable in the long run?

a. labor
b. plant size
c. capital and equipment
d. all of these

answer

d. all of these

question

By 2020, automobile market analysts expect that the demand for electric autos will increase as buyers become more familiar with the technology. However, the costs of producing electric autos may increase because of higher costs for inputs (ex. rare earth elements) or they may decrease as the manufacturers learn better assembly methods. (learning by doing) What is the expected impact of these changes on the equilibrium price and quantity for electric autos?

a. Unambiguously higher price, and equilibrium quantity may be higher or lower
b. Unambiguously higher equilibrium price and quantity
c. Unambiguously higher quantity, and equilibrium price may be higher or lower
d. We cannot form any unambiguous expectations for either price or quantity

answer

question

Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as

answer

P=MC

question

Rather than charging a single price to all customers, a firm charges a higher price to men and a lower price to women. By engaging in this practice, the firm:

answer

is attempting to convert consumer surplus into producer surplus

question

As a group, US consumers have no income response for their consumption of ice cream so that the income elasticity of demand for ice cream equals zero. Does this mean that the change in ice cream consumption that results from a price increase is entirely composed of the substitution effect?

answer

Yes, the income effect associated with a price change is zero.

question

The authors explain that a firm earning a zero economic profit in the long run has earned a competitive return on their investment. What do they mean by "competitive" return in this context?

answer

The firms return is at least as large as it could have earned in another investment

question

Which of the following is true?

a. In the short run, predatory pricing involves pricing the product below average variable cost.
b. American courts frequently find companies guilty of predatory pricing
c. Predatory pricing is a reliable method of monopolizing a market
d. None of the above is true

answer

a. In the short run, predatory pricing involves pricing the product below average variable cost.

question

Which of the following theories explains why the number of firms in a market does not determine the level of competition in that market?
a. The theory of contestable markets
b. The theory of natural monopoly
c. Predatory pricing theory
d. The theory of derived demand

answer

A. The theory of contestable markets

question

Assume that beer is an inferior good. If the price of beer falls, then the substitution effect results in the person buying ______ of the good and the income effect results in the person buying ____ of the good

answer

More / less

question

Substitution effect

answer

The idea that as prices rise (or incomes decrease) consumers will replace more expensive items with less costly alternatives.

question

Income effect

answer

as lower-priced or inferior commodities are eschewed for more expensive, higher-quality goods and services

question

Giffen good

answer

a product that people consume more of as the price rises

question

T/F: For all Giffen goods the substitution effect is larger than the income effect

answer

False

question

T/F: For all inferior goods the substitution effect is larger than the income effect

answer

False

question

Inferior good

answer

a good that decreases in demand when consumer income rises

question

Assume that beer is a normal good. If the price of beer rises, then the substitution effect results in the person buying _____(more/less) of the good and the income effect results in the person buying _____ (more/less) of the good

answer

Less/ less

question

A firms short run average cost curve is U shaped. Which of these conclusions can be reached regarding the firms returns to scale?

answer

The short run average cost curve reveals nothing regarding returns to scale

question

The price elasticity of demand for a demand curve that has a zero slope is

answer

Infinity

question

A change in which of the following would NOT shift the demand curve?
a. Information about the products health effects
b. the price of the product
c. the price of related products
d. the income on consumers

answer

b. the price of the products

question

A firms marginal cost can always be thought of as the change in total cost if

answer

the firm produces one more unit of capital

question

If Fred's marginal rate of substitution for salad (X) with pizza (Y) equals 5, then

answer

he would give up 5 pizzas to get the next salad

question

Suppose a market were currently at equilibrium. A rightward shift of the supply curve would cause a

answer

decrease in price but an increase in quantity

question

income effect is _____(before/after) substitution effect on a graph

answer

before

question

When measuring the substitution effect one uses the change along

answer

the old indifference curve

question

Holding all other factors constant, consumers demand more of a good the

answer

lower its price

question

The percentage change in the quantity demanded in response to a percentage change in the price is known as the

answer

price elasticity of demand

question

the theory of consumer behavior ("well behaved" indifference curves) is based on certain assumptions. The set of four basic assumptions includes;

answer

both completeness and transitivity

question

Suppose a firm has a monopoly and faces a downward sloping demand curve for its product, and its marginal cost curve is upward sloping. If the firm reduces its price, then

answer

consumer surplus increases, producer surplus may increase or decrease..

question

Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of clothing, the budget line will....

answer

become flatter

question

The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. The total cost to produce 100 cookies is...

answer

100*.25= $25

question

Consider the demand curve of the form Q=a-bP. If a is a positive real number, b=0, then demand is

answer

completely elasic

question

When labor usage is at 12 units. output is 36 units. From this we may infer that

answer

the total product of labor is 1/3

question

In the short run, a perfectly competitive firm earning positive economic profit is

answer

on the upward sloping portion of its ATC

question

Under perfect price discrimination, consumer surplus....

answer

equals zero

question

Monica consumes only goods A and B. Suppose her marginal utility from consumer good A is equal to 1/Qa, and her marginal utility from consuming good B is 1/Qb. If the price of A is $0.50 and the price of B is $4.00, and Monica's income is $120.00, how much of Good A will she purchase?

answer

120 bc they both derive the same utility, so only purchase the less expensive one

question

Suppose biochemists discover an enzyme that can double the amount of ethanol that may be derived from a given amount of biomass. Based on this tech development, we expect the

answer

supply curve for ethanol to shift right

question

An L shaped isoquant

answer

would indicate that capital and labor cannot be substituted for each other in production *** perfect compliments

question

If the distance between those isoquants increases as output increases, the firm's production function is exhibiting ______; doubling both inputs will result in placement on an isoquant with less than double the output of the previous isoquant

answer

decreasing returns to scale

question

Which of the following will NOT cause a shift in the supply of gas?
A. An improvement in oil refining tech
B. A decrease in the price of gas
C. A decrease in the price of crude oil
D. An increase in the wage rate of refinery workers

answer

B. A decrease in the price of gas... it would just slide along the existing supply curve but not shift it entirely

question

If one firm buys up all of its competitors, which of the following might still prevent it from raising its price above the competitive level?

answer

Because raising the price might encourage new firms to enter the industry and compete

question

In an increasing-cost industry, expansion of output...

answer

causes input prices to rise as demand for them grows... the more companies that join the industry,,, the more resources that they need so there is an increase in demand for supplies and factors needed for production. These industries tend to need goods or services that are inelastic

question

A firm's producer surplus equals its economic profit when

answer

fixed costs are 0

question

True/ False
I. Markets may be highly competitive even if there are only a few sellers
II. There is no fixed number of firms that determines whether a market is competitive

answer

Both true

1 of 47

question

Which of the following will cause the price of beer to rise?

answer

Both A shift to the left in supply

question

answer

-Pa/Pb

question

In the short run, a perfectly competitive profit maximizing firm that has not shut down

answer

is operating on the upward sloping portion of its AVC curve

question

A few sellers may behave as if they operate in a perfectly competitive market if the market demand is

answer

very elastic

question

Which of the following inputs are variable in the long run?

a. labor
b. plant size
c. capital and equipment
d. all of these

answer

d. all of these

question

answer

question

Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as

answer

P=MC

question

Rather than charging a single price to all customers, a firm charges a higher price to men and a lower price to women. By engaging in this practice, the firm:

answer

is attempting to convert consumer surplus into producer surplus

question

answer

Yes, the income effect associated with a price change is zero.

question

The authors explain that a firm earning a zero economic profit in the long run has earned a competitive return on their investment. What do they mean by "competitive" return in this context?

answer

The firms return is at least as large as it could have earned in another investment

question

answer

a. In the short run, predatory pricing involves pricing the product below average variable cost.

question

answer

A. The theory of contestable markets

question

answer

More / less

question

Substitution effect

answer

The idea that as prices rise (or incomes decrease) consumers will replace more expensive items with less costly alternatives.

question

Income effect

answer

as lower-priced or inferior commodities are eschewed for more expensive, higher-quality goods and services

question

Giffen good

answer

a product that people consume more of as the price rises

question

T/F: For all Giffen goods the substitution effect is larger than the income effect

answer

False

question

T/F: For all inferior goods the substitution effect is larger than the income effect

answer

False

question

Inferior good

answer

a good that decreases in demand when consumer income rises

question

answer

Less/ less

question

A firms short run average cost curve is U shaped. Which of these conclusions can be reached regarding the firms returns to scale?

answer

The short run average cost curve reveals nothing regarding returns to scale

question

The price elasticity of demand for a demand curve that has a zero slope is

answer

Infinity

question

answer

b. the price of the products

question

A firms marginal cost can always be thought of as the change in total cost if

answer

the firm produces one more unit of capital

question

If Fred's marginal rate of substitution for salad (X) with pizza (Y) equals 5, then

answer

he would give up 5 pizzas to get the next salad

question

Suppose a market were currently at equilibrium. A rightward shift of the supply curve would cause a

answer

decrease in price but an increase in quantity

question

income effect is _____(before/after) substitution effect on a graph

answer

before

question

When measuring the substitution effect one uses the change along

answer

the old indifference curve

question

Holding all other factors constant, consumers demand more of a good the

answer

lower its price

question

The percentage change in the quantity demanded in response to a percentage change in the price is known as the

answer

price elasticity of demand

question

the theory of consumer behavior ("well behaved" indifference curves) is based on certain assumptions. The set of four basic assumptions includes;

answer

both completeness and transitivity

question

Suppose a firm has a monopoly and faces a downward sloping demand curve for its product, and its marginal cost curve is upward sloping. If the firm reduces its price, then

answer

consumer surplus increases, producer surplus may increase or decrease..

question

Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of clothing, the budget line will....

answer

become flatter

question

The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. The total cost to produce 100 cookies is...

answer

100*.25= $25

question

Consider the demand curve of the form Q=a-bP. If a is a positive real number, b=0, then demand is

answer

completely elasic

question

When labor usage is at 12 units. output is 36 units. From this we may infer that

answer

the total product of labor is 1/3

question

In the short run, a perfectly competitive firm earning positive economic profit is

answer

on the upward sloping portion of its ATC

question

Under perfect price discrimination, consumer surplus....

answer

equals zero

question

answer

120 bc they both derive the same utility, so only purchase the less expensive one

question

Suppose biochemists discover an enzyme that can double the amount of ethanol that may be derived from a given amount of biomass. Based on this tech development, we expect the

answer

supply curve for ethanol to shift right

question

An L shaped isoquant

answer

would indicate that capital and labor cannot be substituted for each other in production *** perfect compliments

question

answer

decreasing returns to scale

question

answer

B. A decrease in the price of gas... it would just slide along the existing supply curve but not shift it entirely

question

If one firm buys up all of its competitors, which of the following might still prevent it from raising its price above the competitive level?

answer

Because raising the price might encourage new firms to enter the industry and compete

question

In an increasing-cost industry, expansion of output...

answer

question

A firm's producer surplus equals its economic profit when

answer

fixed costs are 0

question

True/ False
I. Markets may be highly competitive even if there are only a few sellers
II. There is no fixed number of firms that determines whether a market is competitive

answer

Both true

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Econ 302 Practice Exam Final Problems

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